When it comes to obtaining mortgages, vehicle loans, or personal loans, a high credit score offers several advantages. It can help you obtain better interest rates, more flexible terms, lower monthly payments, and more.
A poor credit rating or lack of credit history can make it difficult for consumers to secure loans or make large purchases. It can also lead to higher interest rates on vehicle loans or mortgages. A FICO score of 800 or higher is considered exceptional, 740-799 is very good, 670-739 is good, and below 669 is fair to poor.
A desirable rating tells lenders — such as credit unions and banks — that you’re financially responsible. Although building credit may seem intimidating, there are many different ways to improve your credit score.
5 simple ways to improve your credit score
1. Know your credit rating.
You can order a free report each year from all three credit reporting agencies — Equifax, TransUnion, and Experian. Many credit card companies also provide free credit score updates via your monthly bill or online through their website or app. Make a habit of checking your credit score regularly. This will help prevent any fraudulent activity or identity theft.
If your FICO score is lower than expected, don’t panic! There are many simple ways to start improving your credit score. Making payments on time, creating and following a budget, using money management tools, or signing up for a secured credit card can drastically increase your rating.
2. Set a budget — and stick to it!
Creating and sticking to a budget will help you make smarter financial decisions that will improve your credit score. If your monthly rent or mortgage payments, insurance payments, grocery bills, utility charges, credit card bills, student loan payments, and more add up to more than your monthly income, it’s time to take an honest inventory of your current financial responsibilities.
This means living below your means, spending only what you can afford, and avoiding any unnecessary spending. Remember: you don’t have to live this way forever, just until you improve your credit score. Here are some questions to ask yourself:
- Add up your monthly expenses. Can any be eliminated?
- Does your monthly spending exceed your income?
- Can you lower your monthly living expenses, such as reducing the price of your rent?
- Can you downsize into a smaller, pre-owned vehicle?
- Can you negotiate lower interest rates on your credit card or student loan payments?
3. Avoid late payments.
If you’re regularly paying your student loan, mortgage, credit card, or utility bills past their due dates, it’s time to stop! This could be seriously hurting your credit score. An individual’s payment history can make up to 35% of their overall rating, which can be especially damaging if you have little to no credit history.
Making payments on time will also help you avoid unwanted late charges and penalties. Financial organizations like Texas Tech Credit Union allow members to set up automatic withdrawals each month through their checking accounts. This prevents late payments, allowing members to schedule them whenever is most convenient. Many people set up automatic payments to be taken out a day or two after they receive their paychecks. If any changes need to be made, members can log in to their online bank accounts to delete or change payments at any time.
4. Pay back any past-due accounts.
A late payment can stay on your credit report for up to seven years, so bringing all your past-due accounts current will boost your FICO rating. It will also prevent negative marks from further harming your credit score. If you’re past due on multiple accounts, it may be helpful to speak with a credit counselor who can negotiate a lower interest rate or set up a debt repayment plan that works for you.
Paying off any high revolving balances on credit cards can also improve your credit score. This includes payment cards and any lines of credit — keeping your debt-to-credit ratio low tells creditors and lenders that you’re financially responsible.
5. Avoid applying for new credit accounts too frequently.
Applying for new credit cards or loans places a hard inquiry on your credit file. Although these marks may only negatively impact your rating by a few points, multiple inquiries can add up. Opening and closing credit card accounts too often can also be a red flag to lenders and could mean a higher interest rate on a loan or mortgage. Additionally, opening new accounts lowers their average overall age, hurting your FICO rating.
Start improving your credit score
There are many ways to improve your credit score, and although it may seem like a difficult process, taking small steps can make a major difference. To stay updated on important financial tips, such as protecting your banking data or finding the lowest auto loan interest rates, subscribe to our blog today!