6 Ways To Improve Your Credit Score

Credit is essential to any person that is seeking a mortgage, car loan, or even a credit card. But how does one go about improving their credit score? That's what this post is for! There are 6 ways to improve your credit score, and each of them are outlined in detail below. Keep reading to find out the best way for you!

The first thing you should know is all the different types of credit scores out there. They range from 300-850 with 300 being the worst and 850 being absolutely perfect! On average an individual will have a score in the 600s on these ranges. However, high scores are good. 600 to 700 is the best range, while lower than that is bad. Those with scores of 650 or higher (on average) should apply for a loan, whether it's more a secured one like a credit card or even an unsecured one like a mortgage loan.

1. Average Payment History - Average Payment History of how often was payments were made on account in past 12 months. As this will show if you're over or under paying your debts on time which can increase your score by 20 points or decrease it by 20 points, depends on your payment history and cash flow situation at that time.

2. Length of Credit History - Length of credit history can be used in determining the "problem" credit cards which contributed to your loss in credit score by reporting them as negative information. Most banks will consider this a 5-point increase, while a 10-point drop is considered a bad situation.

3. Age at Which Credit Was Received - Helping to determine the age at which you gained your credit score, it was when you had first secured your first line of credit. For example, if you received a line of credit for the first time aged 26 years old, then it will count as 0 points for having an older ages and 1 point for your age being younger than 25 years old.

4. The Amount of Debt - Higher your debt, the higher are easier for you to get a loan. What contributes to this is the amount of money you have borrowed out and have outstanding. This can be used for higher credit scores such as 800+. For example, if you have a credit score of 680 with an outstanding amount of $10,000, then it will still count as $10,000 in credit despite your debt being $9,800 (average amount made per month).

5. Length of Credit History - If a person's credit history has been used many times which is the same story with over-using a card, then it is counted as negative information and causes a maximum of 10 points drop in their credit score. This is why it's important for you to have at least 2 or more credit cards with different limits. This way, you will be able to make use of each of those cards depending on your needs, and at the same time, never over using them.

6. New Credit - New credit refers to all the new accounts you've opened in the past 60 days if they are paid on time and reported as positive information towards your credit score. For example; say you have a credit score of 627 points with $20,000 debt on one card. That card is paid monthly. Now you want to open another credit account and pay that one monthly. Your credit score will increase by 10 points, because if you've made 2 payments so far and they were on time, then it will count as positive information as you are responsible with your payments.

7. % of Credit Used - The amount of credit out of the entire amount available can be used in determining how much more you can use in acquiring new credit cards or loans. This is because the more money you have on your accounts, the higher chances for an account to be compromised due to hacking, social engineers, and compromised websites etc..

8. New Inquiries - New credit inquiries are what happens when someone pulls a copy of your credit report. This will show if you are applying for a loan and can affect your current card's credit line by either increasing or decreasing it (depending on the financial institution).

9. Length of Credit Accounts - If an account is older, it means that these accounts have been in use for a long time and will increase one's credit score as they age. Therefore, if you have old accounts that are nearing maturity, then it's best to pay them off before their maturity date so that the bank doesn't close them and reissue new cards with smaller limits.

10. Credit History - Histroy of credit can be used in determining how many times a person applied for credit and was approved or denied. This way it can increase or decrease their score depending on the number of times they were approved or denied.

11. New Accounts - The new accounts are those that are opened within the past 60 days, where they are opened and paid on time (within the grace period).

12. Account Balances - The average balance and payment amounts of an account can be used in determining which would lower your credit scores and which will raise it. Because if someone has an account with a balance and payment of $1,000 each month and a max credit line limit of $7,000 and they overuse this card and go over 5% of their limit in the past 12 months. It's likely that their account will be monitored since it was used 5% or more than their available credit line limit.

13. Late Payments - For that person who doesn't pay on time for any reason or for no reason at all then this is considered as negative information towards their score which can also lead to a decline in credit rating.

14. Recent Credit Inquiries - There are 2 different credit inquiries. The first one is called hard credit pull, where a lender pulls your credit report because you've applied for a loan or when you've already been approved for a loan and signed the contract. The second kind of inquiry is called soft credit pull, where an organization pulls only the information needed from your report such as credit card companies and insurance companies who request your information only to renew their contracts with you.

15. Credit Lines - The total amount of credit you have, either open or closed accounts isn't too important to the banks. What's important is the line each account has been approved for. It's best for your credit scores to have at least a $1,000 limit per line because if you keep expanding that limit every time there is a new line proposed, then it can lead to being over-extended and go back into defaults without even realizing it.

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Conclusion

After gathering the above information and analyzing it, you'll be able to find out which one will benefit your credit score the most.

You may think that having a credit limit of $5,000 won't benefit your credit score as much as having $1,000 limit on each line of your account. However, how you use and manage that extra money is what will determine how much of an impact it will have on your score.

For example; say that you carry an account with a $6,000 balance on one card and you decide to add another $2,000 balance on another account.