June 10th, 2018 7:15 AM by Jackie A. Graves, President
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Getting an excellent credit score may be
easier than you think.
Here are 5 easy
ways for you to increase your credit score:
Why Your Credit Score Matters
For better or
worse, your credit score is the gateway to an array of financial products such
as mortgages, auto loans, personal loans, credit cards and private student
Your credit score
also may be used when you apply for insurance, rent an apartment or purchase a
FICO credit scores are among the most
frequently used credit scores, and range from 350-800 (the higher, the better).
A consumer with a credit score of 750 or higher is considered to have excellent
credit, while a consumer with a credit score below 600 is considered to have poor
5 Ways To Increase Your Credit Score
1. Double check your credit reports for accuracy
that you obtain a copy of your credit reports and check it carefully. Why?
Trade Commission found that 5% of consumers had one or
more errors on their credit report.
There are three
major credit bureaus: Experian, Equifax and TransUnion.
bureau collects information on your credit history and develops a credit score
that lenders use to assess your riskiness as a borrower. Under federal law, you
are entitled to view your credit report every 12 months from each credit
bureau. Since each credit bureau may have different information about your
credit history, your credit score may vary across the three lenders.
For a free copy
of your credit report, you can visit Annualcreditreport.com.
If you find an
error, you should report it to the credit bureau immediately so that it can be
2. Show you have a healthy financial track record
To demonstrate that you are financially responsible, you need
to develop a financial track record in good standing.
history is one of the largest components of your credit score. To ensure
on-time payments, set up autopay for all your accounts so the funds are
directly debited each month.
FICO scores are
weighted more heavily by recent payments so you can "override" a past
missed payment by developing a pattern of more recent on-time payments.
Therefore, if you have a delinquent payment, pay off the balance.
It also means
not skipping any payments because missed payments can also hurt your credit
score. Missing a payment can stay on your credit report for seven years.
also look at your account age, which is how long your accounts have been open
and in good standing.
The longer that
you can keep open a credit card in good standing, the better (so that you can
increase your account age).
3. Manage your credit card utilization
evaluate your credit card utilization, or the relationship between your credit
limit and spending in a given month. If your credit utilization is too high,
lenders consider you higher risk.
credit utilization show be less than 30%. If you can keep it less than 10%,
even better. For example, if you have a $10,000 credit limit on your credit
card, ideally you should spend less than $1,000 in a given month.
Here are some
ways to manage your credit card utilization:
set up automatic balance alerts
to monitor credit utilization
ask your lender to raise your
credit limit (this may involve a hard credit pull so check with your lender
pay off your balance multiple
times a month to reduce your credit utilization
4. Improve your debt-to-income ratio
evaluate your debt-to-income ratio when making credit decisions, which could
impact the interest rate you receive.
debt-to-income ratio is your monthly debt payments as a percentage of your
monthly income. Lenders focus on this ratio to determine whether you have
enough excess cash to cover your living expenses plus your debt obligations.
debt-to-income ratio should be your goal because it means you have more income
that can be used to pay for new debt such as a loan.
Two ways to
lower your debt-to-income ratio: either pay off outstanding debt or earn more
income (or both)
5. Consolidate credit card debt with a
If you have
credit card debt, the good news is that you can do something about it.
One option is
to consolidate your credit card debt into a single personal loan at a lower interest rate
than your current credit card interest rate.
A personal loan
therefore can save you interest expense over the repayment term, which is
typically 3-7 years depending on your lender.
A personal loan
also can improve your credit score. Why?
A personal loan
is an installment loan, which means a personal loan carries a fixed repayment
term. Credit cards, however, are revolving loans and have no fixed repayment
term. Therefore, when you swap credit card debt for a personal loan, you can
lower your credit utilization and also diversify your debt types.
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