7 ways to boost your credit rating
21% of Americans were denied when applying for a credit card, loan, or apartment rental in 2020 due to bad credit. If you find yourself in this demographic or are simply concerned about your credit score, then you’ve come to the right place.
Your credit rating is crucial for so many aspects of your life as it lets lenders know how reliable and dependable you are. Having a good credit score gives you more financial options and lower interest rates, among other benefits.
Check out these 7 ways to boost your credit rating so you can reap the benefits.
1. Review Your Credit Reports
To begin boosting your credit rating, start by checking your credit reports. You’ll be able to see what is working for you and against you. You’ll want to check your Equifax score, Experian, and TransUnion reports — the three major credit rating agencies.
The reports will give insight into what’s hurting your score so that you can work to improve or resolve it. For example, you may see a pattern of missed payments or high balances on your credit cards.
You can also identify and correct mistakes and dispute them when applicable. Even the smallest mistake on your report, such as an address being incorrect, can hurt your score. You may also see wrongly recorded missed payments which you can dispute and resolve.
For more insight into increasing credit scores fast, check out this complete guide.
2. Don’t Miss Payments
This is one of the most fundamental aspects of your credit score, as making payments on time shows that you are a dependable lender. If you have a low credit score, it’s vital that from here on out, you make all of your payments within the given time limit.
If you know that you won’t be able to make a payment on time, then you should contact your lenders and negotiate additional support. Keep in mind that one late payment can affect your score by up to 130 points and remains on your credit report for up to six years.
Aim to automate bill payments from your bank account and set up due-date alerts to remind you to make payments.
3. Aim for 30% Credit Utilization or Less
Credit utilization is the amount of your credit limit that you are currently using. Aside from payment history, this is one of the most important factors on the credit rating scale.
You should aim to pay your complete credit card balances each month. When you’re unable to do this, then try to keep the outstanding balance at a maximum of 30%. By doing this, you can keep your credit utilization in check and work towards bringing that percentage down each month.
Additionally, you can ask for a credit limit increase as increasing the limit helps to decrease the percentage of outstanding balances. Don’t fall into the trap of increasing the limit and then spending more money, though.
4. Limit Opening New Accounts and ‘Hard’ Inquiries
Opening new accounts help to build your credit file, which is a good thing. That being said, you should try to limit how often you submit credit applications. When you submit an application, it may lead to a hard inquiry, and this can negatively affect your credit rating.
While the occasional hard inquiry for something such as a new credit card or auto loan is unavoidable and unlikely to hurt your score, multiple hard inquiries in a short time isn’t good. Banks may take this to men that you are struggling with financial difficulties.
Additionally, opening new accounts decreases the average age of all of your accounts, which hurts your score. The older your accounts, the better your credit rating.
5. Consider Consolidating Debts
If you have plenty of outstanding payments that you’re unable to resolve, consider a debt consolidation loan. This makes it easier for you to pay off your debt as you only have one payment to deal with rather than plenty of outstanding payments with different interest rates and time frames.
You may also be able to negotiate a lower interest rate which means you can pay off your debt faster. This improves your credit utilization ratio, which we discussed earlier.
6. Become an Authorized User
A credit score is an unusual thing. If you don’t have many accounts, have never taken out a loan, and have always made payments on time, you’ll have a thin credit file.
While this should be a good thing, it’s not. It means that there isn’t enough credit history to generate a score. So, lenders don’t know how dependable and reliable you are.
The best way to deal with a thin report and boost your rating is to become an authorized user of someone else’s account. Speak to a friend or family member who has good credit scores and a history of responsible credit card use.
They can add you to the account as an authorized user but don’t actually have to give you the details or card to the account. This will give you longer credit history and lower your credit utilization.
7. Avoid Multiple Applications
If you make an application and it’s denied, don’t immediately apply for another product. When you make multiple applications, it may indicate that you are experiencing financial difficulties, and this will hurt your credit score.
An application is visible on your report for 12 months but shouldn’t affect your score after 3 months. So give it a decent amount of time before making more applications.
Monitor Credit Rating to Keep it in Check
Boosting and maintaining your credit rating is not a once-off job. You need to continuously strive to maintain it by making payments on time, keeping accounts open, limiting new accounts, and more.
Regularly check your credit reports and scores so that you know exactly what you’re doing right and wrong.
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