If you don’t want to improve your credit score, you may already have an 850 score. Otherwise, you should aspire to a higher grade. Why? Because the better your credit score is, the more money you can save on a loan. And the sums at stake are enormous.
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Take a look at the examples on our webpage. When compared to someone with bad credit, someone with good credit might expect to save tens of thousands of dollars.
- A $30,000 auto loan with a 72-month term cost more than $7,500.
- On a $432,000 30-year fixed-rate mortgage, you’ll pay more than $85,680.
- A $10,000 personal loan with a 36-month term cost more than $2,475
Syracuse University’s report from 2022. The cost of a bad credit score is explained in “The Cost of a Bad Credit Score.”
It emphasises that a poor credit score affects you in other ways as well. A security deposit of $1,006 may be required by your landlord. In addition, your insurer may increase your homeowners and car insurance premiums by $1,965 per year.
Worse, even if a potential employer is unable to examine a job candidate’s credit scores, it can view their credit reports. That’s nearly the same thing. Because a credit score is only a three-digit representation of one of those reports’ contents. As a result, if you have bad credit, you may be turned down for your desired job.
How Can You Improve Your Credit Score?
Taking steps to improve your credit score can save you a lot of money. And as soon as your score is as good as it can be, all that extra money you keep should allow you to live a better life.
However, how do you improve your score? It’s not as enigmatic as you may believe. In fact, there are only a few easy principles to follow.
Make sure you pay all of your payments on time
This is the single most important factor in your credit score, accounting for 35% of it. Pay every bill on time, if possible a day or two ahead of time, to avoid being at the mercy of the banking system’s faulty technology.
Payments that are late or skipped have serious consequences. Defaults (when a lender considers you in “default” because you haven’t paid) and collections (when debt collectors begin phoning) are even worse. In fact, they’re detrimental to your grade.
Make regular payments a priority, even if it means making compromises in your lifestyle to do so. Allow them to fall solely in the event of a personal financial disaster, such as illness or unemployment. Even so, phone your creditors before each due date to explain what’s going on and ask for more time to pay without jeopardising your credit score. This is something you can’t demand. However, you might be amazed at how many people will go out of their way to assist you.
Maintain a low balance on your credit cards
Keeping your shop and credit card balances low is almost as crucial as making timely payments when it comes to your credit score. It accounts for 30% of your total score. As a result, take this seriously. Surprisingly, it’s not so much what you do that matters.
Assume you have a $10,000 credit limit and a $1,000 balance on your card. You’re only utilising 10% of your credit limit, yet it’ll help your credit score. But let’s say you’ve maxed out the same card and have a $10,000 balance. Your credit score should suffer as a result of you spending 100% of your credit limit.
Of course, you can use your credit cards. They can be an excellent tool to keep track of your financial flow. You just want to keep each account’s balance between 10% and 30% of its credit limit.
If you don’t have to, don’t open or close credit accounts
The average age of your accounts contributes for 15% of your credit score: the older, the better. However, every time a long-standing account is closed, the average gets younger. And you repeat the process each time you open a new account.
When you create new accounts, your credit score suffers a double whammy. That’s because every time you do so, you’ll incur a tiny penalty.
Don’t get too worked up over it. Typically, the penalty is simply a few points. And, if you make on-time payments throughout that time, your credit score should improve within a few months. However, never apply for multiple new accounts in a short period of time. It gives the impression that you’re in financial distress, which raises your score significantly.
Of course, no one is advising you to keep your present set of accounts indefinitely. There are excellent reasons to close or open one at times. Just don’t do it if you don’t have to or if you don’t need your score to be as high as possible. When you’re ready to apply for a large loan (mortgage, vehicle loan, etc.) or seeking to improve your credit score, for example.
Have a variety of credit cards
Only 10% of your total score is based on this. It is, nevertheless, a pretty simple task to master.
If you have a variety of credit accounts, your credit score will improve. You’ll need some “revolving” credit (nearly mainly shop and credit cards) and some “nonrevolving” credit, to use the language (installment loans, such as mortgages, personal loans, auto loans and so on).
To be clear, revolving credit includes shop and credit cards because you can borrow, repay, and borrow again. Installment loans allow you to borrow a lump sum for a certain length of time and repay it in equal monthly payments (subject to variable interest rates).
Improve Your Credit Score and Live a Happy Life
You’ll probably have to make sacrifices to improve your credit score unless your lifestyle and income allow you to have lots of money left over at the end of each month. Paying down credit card debt, for example, may necessitate careful budgeting.
If you don’t try to do too much in too little time, you’ll probably find it simpler to maintain your motivation. With any luck, you’ll be able to set aside enough money each month to live comfortably and indulge in occasional luxuries.