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3 Tips to Improve Your Credit Score

November 20, 2020

By: Jason Lee

For many people, your credit score is something you don’t think about on a daily basis unless you see it mentioned in a commercial, or maybe if a friend brings it up. However, when it comes time to make a major financial move like buying a car, purchasing your first home, or taking out a much-needed loan—it becomes the most important thing in the world.

Increasing your credit score is something that takes time, but it’s certainly an attainable and manageable financial goal that can empower you with financial flexibility down the road. And the best news? It doesn’t take any earth-shattering, ground-breaking changes. A few simple steps and a solid plan can help you increase your credit score in no time.

For many people, your credit score is something you don’t think about on a daily basis unless you see it mentioned in a commercial, or maybe if a friend brings it up. However, when it comes time to make a major financial move like buying a car, purchasing your first home, or taking out a much-needed loan—it becomes the most important thing in the world.

Increasing your credit score is something that takes time, but it’s certainly an attainable and manageable financial goal that can empower you with financial flexibility down the road. And the best news? It doesn’t take any earth-shattering, ground-breaking changes. A few simple steps and a solid plan can help you increase your credit score in no time.

How to Improve Your Credit Score
Check for discrepancies on your credit report

The number one stop for improving your credit score is making sure that you’re getting credit for the work you’ve already done. According to a study done by the Federal Trade Commission (FTC), one in four consumers identified errors and discrepancies on their credit report. Out of those with errors, four out of five who addressed the discrepancies saw a positive modification to their credit report.

How do you go about checking your report and correcting errors? First, you need to get a copy of your credit report. AnnualCreditReport.com is a website run jointly by the three major reporting bureaus where you can get access to a free copy of your report every year from each of the bureaus. Get a copy of this report and check it thoroughly for errors. If you find something, immediately dispute it with the respective reporting bureau. And while the bureau is required by federal law to follow up with you, make sure to do your part and ensure the errors get fixed.

Decrease your credit utilization

A large component of your credit score is how much of your available credit you are using. Remember, your credit score is a metric that helps to tell lenders how likely you are to default on a loan within the foreseeable future. If you have access to $30,000 in money you can borrow and you’re using all $30,000 of it, you’re going to seem like a riskier borrower than someone who has access to that same $30,000 but is only using a few hundred dollars of it.

There are two main ways you can decrease your credit utilization percentage. First, you can increase the amount of money you have access to. One way to do this is to add yourself onto a family member’s credit card account. As long as your family member doesn’t regularly carry a balance, you should see some benefit. A second way to decrease your credit utilization is to reduce the amount of money you’re borrowing by paying down your debt. And if you’re curious, yes, you can certainly use both of these strategies at the same time.

Pay down your credit debt

Paying down your credit card debt is really just another way to decrease your credit utilization. Lowering your total debt overall is also a great strategy to increase your credit score. Remember, your credit score is a metric that shows lenders how risky you might be as a borrower. The more debt you have, the greater the risk you pose to lenders (at least on paper, which is what matters in credit decisions).

According to the Fair Isaac Corporation (FICO), the company that generates your FICO credit score (the score used in most borrowing decisions), the amount you owe accounts for 30% of your overall credit score, which is the second largest contributing factor. By reducing what you owe, you can really help to move the needle on increasing your credit score.

And as a bonus, when you make these payments on time, you’ll be demonstrating a positive payment history, which, at 35%, is the largest contributing factor to your FICO credit score.

The Bottom Line

Increasing your credit score can and usually does take some time. However, having a good to great credit score can give you the financial flexibility you need to make the financial moves you want to. Even if you don’t have any major moves on the horizon, start the work now, so that you don’t have to worry about it later. Remember, it doesn’t take major actions to move the needle. Simple steps and repeatedly doing the right thing can improve your credit score in no time.

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