Credit score awareness and management can be catalysts for a change in one’s financial behavior. Studies suggest that when consumers become aware of their credit score, they will dramatically change their perception of financing.
More importantly, take note that repairing a bad credit score will take longer than building a good one. With lousy credit handling, you will take up more debt, pay a lot of money for interests, and will affect other aspects of your finances.
If you have skimmed through the Internet before reading this article, you may have already read a ton of tips and tricks about how to quickly and easily improve your credit score. However, all of those can be ultimately useless if you don’t pay your bills on time, act smart in managing your credit cards, budget well, and settle your debt.
Tips for Repairing Your Credit Score
If you haven’t looked at your credit score yet, then this is the best time to know what your rating is and how to repair it. Some credit card sources like Discover Card can offer you the details of your credit score. Also, other online sources like Credit Ninja can teach how your credit score will be computed.
There are plenty of ways to choose from, so you can easily know your credit score, for sure. Once you’ll get to know your credit score and you’ve realized how low it is, don’t worry. We’ve got you covered. Here are some tips you can do to improve your poor credit score.
Pay Your Bills on Time
The most important thing lenders will check on you is how reliable you are in repaying your loans. This can be shown in your credit score. In terms of paying bills, the higher your credit score is, the more reliable you are in the eyes of lenders.
Paying your bills on time will have a significant change in your credit score. On the other hand, paying late or less than the required payment amount can affect your credit score.
Credit card bills should not be the only thing you should pay on time. Rental fees, auto loans, mortgage, student loans, and bills for other expenses that you should settle on time can have a substantial effect on your credit score, as well.
Keep in mind that a missed payment can hurt your credit report, and worse is it may last for seven years. Conversely, if you make this up by paying your bills on time, then it will be not much of a problem because recent payments are more important than older ones on your credit report.
Credit Utilization Ratio
Another critical factor in calculating your credit score is your credit utilization ratio. If you don’t know what this is, it is the amount of revolving credit you are using that is divided by the overall amount of revolving credit that you have. In simpler words, it is the debt that you have divided by your total credit limit.
To know how much your credit utilization ratio is, check your credit statements for the last 12 months and add them all together; then, divide it by twelve. The resulting number is your average credit that you use each month. Lenders typically like to see 30% of this or less. Also, people who have a good credit score tend to have a low credit utilization ratio on their credit reports.
Open New Credit Accounts Only If Necessary
Opening up new credit card accounts might be a good idea, but most probably, it is not. Doing this will harm your credit score in multiple ways, like having many hard inquiries regarding your credit report from your lenders and tempting you to spend more from your new credit cards, thus accumulating more debt.
If you have unused credit accounts, it is probably better to keep them open (as long as they do not cost you additional fees). This is because closing an account will make your credit utilization ratio higher.
Additionally, it is also worth noting that creating too many credit accounts can increase your total credit limit and will give you more hard inquiries about your credit report. If you don’t know what a hard inquiry is, it is basically when a lender deems your credit report a critical factor when calculating your credit score.
Considering how a credit score can relatively influence your financial situation, it is a smart move to improve it as soon as possible. Regularly checking your credit score and credit report are crucial steps in building or improving an excellent credit score. Focusing on the steps mentioned above can lead to a better credit score and better financing in the future.