A credit score can be a hard thing to understand. First, you have to figure out how it’s calculated. Then, you have to learn how to improve it and why that matters. Once you have checked over your credit report to make sure there aren’t any errors, and everything seems accurate, it’s time to figure out how to make your credit score go up.
1. Credit card balance
You credit card balance impacts your credit score in a big way; it accounts for about 30% of your credit score calculations. The goal here is to keep your balances low. You should aim for a debt usage of 30% or lower. If you really want to improve your credit score, aim for 10% or lower. It might seem like a waste to have a credit limit that’s much more than you typically spend, but you should think about increasing your limit if you’re currently using above 30-40% of your credit available each month. However, only increase your credit limit if you’re confident that you won’t start spending more money. It’s more important to pay your monthly bills than have a lower balance.
2. Payment history
Your payment history contributes to about 35% of your credit score, so don’t dismiss this. If you pay your bills on time, you’ll have a payment history that helps your credit score. If not, it’s probably hurting your score. You can fix this issue by getting help from a credit counselor or by changing your spending habits to focus on repaying debts. Start paying back the debts with the highest interest rates first, but don’t forget to pay current bills as well. Some people have trouble remembering to pay their bills on time even if they have the money. In this case, you should consider setting up automatic payments or payment reminders so that you don’t have to worry about getting penalized for late payments. Most of us have had debt at one time or another, but we don’t like to talk about it. Don’t try to remove the debt you paid off from your history. If you paid off the debt in the way you agreed to, this can actually increase your credit score. People like to know that they can trust you to pay things back even if you go through a rough period. The point is, pay back your debt, and make your monthly payments on time.
3. Credit age
If you’re new to credit, you won’t have a very long credit history. Your credit score might be lower because of this since you haven’t proven that you will consistently pay back debt. It’s hard to know that you’re trustworthy and wise about your spending habits if you just got a credit card. One way for this to impact your score less is by adding your name to a family member’s credit card. This is only a smart decision if you have a family member that has a long, positive payment history. Your credit age impacts around 15% of your credit score.
4 .Spending behavior
If you suddenly start to spend much more money than you used to, your credit score could drop. The same is true if you start to only pay the minimum on bills instead of the full amount. Sometimes life happens, and you will spend much more than normal in a month. In this case, you should consider paying your bill twice in the month. Even if you’re planning to pay the full amount at the end of the month, it can look like you’re maxing out your card and hurt your credit score. To avoid that, think about paying some of your bill after the statement closing date and paying the rest right before the due date.
5. Credit mix
If you just have one credit card, you might have a lower credit score. An auto loan or a small personal loan with a low interest rate can increase your score. Your score might initially dip down because of the loan. However, it will increase in the long run. If you’re looking to increase your credit score fast, don’t use this tactic. You should only get a loan or expand your credit mix when the need arises. Having multiple credit cards can also help you to increase your credit score.
6. Old and new credit cards
Sometimes it can be wise to open a new credit card account or close an old one. Don’t do this just for the sake of your credit score. Closing an old account can actually hurt your score because it puts all your debt on less cards which makes your remaining cards look like you’re spending more. Also, closed accounts can continue to affect your credit score. Opening a bunch of new credit cards with stores for the discount it offers can make it look like you need more credit cards to keep up with your spending habits. Be picky when getting a new credit card, and think twice before closing a current one you have.
7. Separate personal from business
Business accounts require a lot of capital and generally more loans than personal accounts. When you don’t separate the two, you could be stuck with a lot of personal debt that lowers your credit score drastically. Don’t risk your personal credit for the sake of your business. Using personal finances to back a business puts all your assets at stake. There are several other benefits of keeping business and personal affairs separate, but credit is a big one.
The most important things you can do to improve your credit score are keeping your credit card balances low and paying your bills on time and in full each month. A high credit score can help you get a lower interest rate when financing a vehicle, getting a loan from a bank, or getting a mortgage for your first house. If you have strong credit as a business, you might benefit from low-cost loans and better deals with suppliers since they see you as more trustworthy. Try some of these tips, and see how they affect your credit score over time.