Your credit score is the most critical aspect of your financial health. It tells lenders and banks how creditworthy you are as a consumer. A good credit score makes it easier for you to take out any loan. Not only that, but with a good credit score, you'll also have access to more favourable loan terms and lower interest rates. However, many people don't have a good credit score.
It makes it harder for them to get loans, and if they do get one, the terms are more likely to be unfavourable, with higher interest rates.
In this post, we'll be talking about some simple steps you can take to improve your credit score.
Review your credit reports
Lenders and banks check your credit reports to assess your credit score and creditworthiness. Your credit reports include your payment history.
Factors that affect your credit score are shown in your credit report, like a record of your payments, low balances on your credit accounts, all of your different loan accounts and ongoing balances, and even hard and soft inquiries. It also shows any late payments and credit card balances, etc.
If you want to check your current credit report, you can ask for a copy from major credit bureaus like Equifax, Experian, and TransUnion. This way, you'll see any errors on your credit report first hand, and you can review the factors contributing to your low credit score.
Aim for a maximum 30% credit utilisation rate
Credit utilisation is the percentage of the credit you're using on all of your credit accounts. It's one of the most important factors in computing your credit score, next to payment history. It's also one of the simplest things to fix if you want to solve your credit score issue quickly.
You should limit the usage of your credit down to 30% among all your credit accounts and pay them off as soon as possible, and that's it. Another way to improve your credit utilisation rate is to ask for more credit. Raising your credit limit can help you lower your credit utilisation rate significantly.
Limit your hard inquiries
There are two types of inquiries, soft and hard. A soft inquiry is when you, your employer, or a lender have performed a credit check when you go through a pre-qualification process. It's important to take note that soft inquiries don't harm your credit score.
On the other hand, hard inquiries can adversely affect your credit score. It happens when you apply for new credit cards, mortgages, car loans, or any other type of credit.
Of course, the occasional hard inquiry won't affect your credit score too much, but if you have them frequently, your credit score could take a big hit. It's because banks and lenders would take this as a sign that you're struggling financially, making you a risk. Not only that, but hard inquiries tend to last between a month to two years.
Thus, if you're looking to improve your credit score, you might avoid sending in applications for new credit.
Keep your old accounts open
The age-of-credit factor in your credit score concerns how long you've had your credit accounts. The older your average credit age is, the more favourable you'll be with lenders. If you have an old credit account, don't close it. Doing so will affect your average credit age and increase your credit utilisation rate since it will reduce your overall balance. That can knock a few points off your credit score.
Consolidate your debt
If you have multiple outstanding loans, it might be a good decision to consolidate them in a single account. It's a clever tactic since it will knock down a few bucks from your monthly balance and make your debts more manageable since you're now only handling a single account. There are even loan products that you could use to consolidate from lenders like CreditNinja.com
If you're worried that you have a poor credit score, there are several ways to improve it. From lowering your credit utilisation rate to consolidating your debts, these simple steps can quickly improve your credit score. Following these steps will improve your credit score, giving you a much easier time with your financial life.
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