How to Improve Your Credit Score?
- Improving your finance and credit score is difficult, however it is really important to have an excellent credit score. This number indicates the risk you represent for lenders on a scale from 300 to 900. High score on a scale indicate a good score and that present a lower risk for the lender.
- Why your credit score matters? You credit score is a number that represents the amount of risk a lender takes on when they lend you money. Generally speaking, the higher the score, the lower the risk for the lender. In Contrary, the higher your score, the better chance you will get approved and get a good rate.
- It is possible to have a high credit score and still get decline for credit or you can get approved but at a very high rate. Why? because your score is only one of many factors lenders look at. Your income, current debt payments, and how much total debt you have also impact your approval.
Reasons Why You Want Good Credit?
- Significant Savings on Interest Rates
- Credit can Affect Where you Live
- Access to Best Credit Cards
- Auto Loans require Good Credit
- Employers require Good Credit Checks
- Be able to get a Cell Phone Contract with No Security Deposit
- Getting your Credit limit raised
- You need Good Credit to Live Comfortably
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So how do you improve your Credit Score?
- Pay Your Bills on Time - Payment history makes up the largest segment of your score at about 35%. Evening missing a $10.00 payment on your credit card bill, is as bad as missing a $400.00 payment - so do not skip any minimum payment or it could hurt your credit score. (This include outstanding payments to collections and city parking ticket collectors as they may report money owe to credit bureau)
- Avoid your Credit Limit - Utilization ratio or your level of indebtedness - is how much of your total available credit you are currently using. It about 30% of your credit score, so it is important to pay attention to. Ideally, you want to keep your balance below 35% of your credit limit and avoid spending over 70% of your limit. (Example, if you have a $5000 credit limited, make sure your balance is under $1750 as it will maximize your score, however if you spend more $3500 it could impact your credit score)
- Long Running Credit Accounts Can Help - How long you had your credit account with your financial institution also help. The longer you have had them and stayed responsible, the better your score should be. This part makes about 15% of your credit score. (If you are just beginning to build your credit score, paying off a loan early or closing the account can have a large negative impact on your score. This especially matters if you have one or two accounts open, so take this in to consideration when thinking of paying off a loan early or closing an account)
- Multiple Active Accounts - Having several credit accounts in good standing shows that you can handle your payments. It about 10% of your credit score. Always stay on top of all your payments.
- Minimize Hard Credit Checks - Hard credit check, or Inquiries can affect your credit score for up to two years and make about 10% of your score. Hard check are used when apply for a credit cards, or mortgage, loans, and even opening a chequing account with a bank or signing up for a new phone plan.