Is a good credit score important? Absolutely! Although it’s something you can’t see, it plays a crucial role in whether you can easily secure loans for major purchases like a house or a car, and it helps you qualify for the best interest rates.
The higher your credit score, the more benefits you’ll enjoy, potentially saving you money on loans and credit. However, improving your credit score doesn’t happen overnight; it requires ongoing effort. Whether you’re starting from scratch or aiming to boost your score quickly, this article will cover some essential credit score basics and provide six actionable tips to help you enhance your credit.
What Is Considered a Good Credit Score?
A credit score is a three-digit number that helps lenders gauge your ability to manage debt responsibly. While you may have multiple credit scores, they all stem from your credit reports provided by the three major credit bureaus: Equifax, Experian, and TransUnion.
Credit scores are not a complete picture of your financial health but focus on your reliability in repaying borrowed funds.
The most commonly used credit scores are FICO scores, which typically range from 300 to 850. Here’s a breakdown of what these scores generally signify:
Below 580: Poor
580-669: Fair
670-739: Good
740-799: Very Good
800 and Above: Excellent
Several Key Factors Influence Your Credit Score:
Payment History (35%): This is the most critical aspect of your FICO score, reflecting whether you’ve made timely payments on your credit accounts.
Credit Utilization (30%): This ratio shows the percentage of your available credit that you’re using. For instance, if you have a credit card with a $10,000 limit and a $2,000 balance, your credit utilization is 20%.
Length of Credit History (15%): A longer credit history is generally better for your score. This includes the age of your oldest and newest accounts, the average age of all your accounts, and the time since you closed any accounts.
New Credit (10%): Applying for new credit results in a hard inquiry on your report, which can affect your score. FICO considers hard inquiries from the past 12 months, so it’s wise to limit applications to avoid excessive inquiries.
Credit Mix (10%): A diverse range of credit types, such as credit cards, mortgages, and installment loans, positively impacts your score.
Your credit score can vary depending on which bureau is reporting it, and slight monthly fluctuations are normal.
If you don’t have recent credit activity, such as a credit card or loan, you might not have a credit score, as there may not be enough information for the bureaus to calculate it.
6 Ways to Improve Your Credit Score in 2024
If you’re aiming to boost your credit in 2024, here’s a straightforward plan to follow:
1.Check for Errors on Your Credit Reports
While credit reports don’t show your credit scores, they contain the data used to calculate them. Finding and correcting errors could improve your score.
You can get a free credit report weekly from AnnualCreditReport.com, though checking once a year is usually sufficient unless you’re preparing for a major purchase. Review your reports more frequently if you suspect fraud or if you’re notified of a data breach.
You can look for mistakes in your personal details like name, phone number, address; unknown accounts or incorrect ownership; incorrect late payments; wrong account balances or credit limits; duplicate accounts and hard inquiries for accounts you didn’t open.
If you spot errors, dispute them with the credit bureau listed on the report. They will provide instructions for resolving these issues.
2.Pay Your Bills on Time
Timely payments are crucial for a strong credit score, as payment history is the most significant factor. A single late payment (30 days or more overdue) can drastically affect your score. Late payments remain on your credit report for seven years, though their impact lessens over time.
Only accounts that report to the credit bureaus, such as credit cards and personal loans, will help build your payment history. Timely payments for utilities or phone bills typically don’t affect your credit unless they go to collections, which can harm your score.
3.Ask a Trusted Person to Add You as an Authorized User
Being an authorized user on a credit card means you can make purchases with the card, but you’re not responsible for payments. If you’re added to a card with good credit, it can boost your score. However, if the primary cardholder misses payments or overspends, it could negatively affect your credit.
If you have a responsible family member or friend, consider asking them to add you as an authorized user. Make sure to get their permission before using the card and avoid making unnecessary purchases.
4.Get a Credit Card if You Don’t Have One
Building credit is tough without a credit card, but getting approved for one can also be difficult if you don’t have a credit history.
To start building your credit, consider these options:
Secured Credit Cards: These require a refundable security deposit that serves as your credit limit. Many secured cards allow you to upgrade to a regular card after demonstrating responsible use.
Unsecured Starter Credit Cards: Designed for people with little or no credit history, these cards don’t require a deposit but might have higher interest rates.
Store Credit Cards: Often easier to qualify for than regular credit cards, these can only be used at specific stores. Requirements vary by retailer.
Student Credit Cards: Ideal for those in school, these cards are tailored for individuals with limited credit history.
Initially, your credit card will likely have a low limit and high annual percentage rate (APR), as new credit users are seen as higher risk.
To manage your card wisely, charge only what you can pay off in full by the due date to avoid interest. Keep your credit utilization below 30%. For example, with a $300 limit, try to keep your balance under $90.
5.Consider a Credit-Builder Loan
A credit-builder loan helps establish credit by requiring you to make monthly payments, which are reported to the credit bureaus. Unlike a standard loan, you don’t receive the funds upfront; instead, you get the money at the end of the loan term after all payments are made.
These loans generally last between six and 24 months and are often available at smaller community banks and local credit unions.
6.Ask for a Credit Limit Increase
If you have a good payment history and demonstrate responsible credit use, you might request an increase in your credit limit. A higher limit can reduce your credit utilization ratio, which can positively impact your credit score. It’s best to wait at least six months before asking for a limit increase to ensure your credit history reflects consistent, responsible usage.
