Simple Hacks to Boost Your Credit Score

According to the credit bureau Experian, nearly six in ten Americans have a “good” credit score. However, approximately 12% of Americans have scores less than 550, which is considered fair or poor. Thus, if you have a lower credit score, there are specific steps you can take to improve it. But first, let’s see what credit scores are and why they are important. 

A credit score is a number ranging from 300 to 850 that represents a consumer's creditworthiness. The higher the score, the more appealing a borrower appears to potential lenders. In addition, credit scores are essential determiners for different financial factors. For example, if you have a good credit score, you won’t pay a fortune for car insurance, and you can get better rates on a credit card, home loan, or other types of loans you want to take. 

How Credit Scores Are Calculated

Credit scores are calculated using a variety of credit data from your credit report. This information is divided into five categories: 

1. Payment history (35 percent)- This assists a lender in determining the amount of risk it will take on when loaning money.
2. Amounts owed (30 percent)-If you are using a large portion of your available credit, this may indicate that you are overextended, which lenders may interpret as a higher risk of default.
3. Length of credit history (15 percent)- A more extended credit history is positive for your FICO Scores. 
4. New credit (10 percent)-Opening multiple credit accounts in a short period of time poses a risk, especially for people who do not have a long credit history.
5. Credit mix (10 percent)-Credit mix can include a variety of accounts such as credit cards, retail accounts, installment loans, finance company loans, and mortgage loans. Lenders and creditors, in general, prefer to see that you have a diverse credit mix – that is, that you have been able to manage different types of credit accounts over time wisely. Therefore, maintaining a combination of credit types may have a positive impact on your credit scores.

Building a good credit score takes years of good financial habits. However, there are some strategies you can employ to make a noticeable difference in the quality of your credit scores. According to specialists, you can improve your score in one to two months, but it may take even longer depending on why your score is low in the first place. Here are five suggestions to help you improve your credit score.

#1 Pay What You Owe And When You Owe

One simple way to accomplish this is to automate your payment. For example, set up bill pay with your bank, so you never have to worry about missing a payment. In addition, you don't have to think about it when you automate it—just set it and forget it. This will help you improve and maintain your payment history. 

#2 Review Your Credit Report

Each of the three credit reporting agencies is required to provide you with one free credit report per year, and requesting one does not affect your credit score. Examine each report thoroughly. Dispute any errors you discover. This is the easiest method to fix your credit quickly. 

#3 Keep Your Credit Utilization Low

Low utilization is the result of having low balances and high credit limits. The most straightforward way to keep your credit utilization under control is to pay off your credit card balances in full each month. If you find yourself spending more than 30% of your total credit limits on a regular basis, contact your card issuer and request a credit limit increase. Then you can work on reducing that to 10% or less, which is considered ideal for improving your credit score.

#4 Limit Credit Requests And Hard Inquiries

Hard inquiries or credit requests usually have a negative impact on your credit score from a few months to two years. Most people's credit scores are reduced by about five points for each additional credit inquiry. Applications for a new credit card, a mortgage, an auto loan, or some other type of new credit are examples of hard inquiries. Multiple credit requests in a short period of time may significantly harm your credit score.

#5 Become an Authorized User

If you know someone with good credit, ask him to add you as an authorized user. You will inherit their benefits simply by being an authorized user on their account. This is an excellent option if your credit history is limited and you have a parent or grandparent willing to add you as an authorized user. Also, because their accounts are likely to be much older than yours, it may have an immediate positive impact.

Just in Case!

If you have bad credit or your credit score isn't enough to have reasonable interest rates on loans, you can take steps to improve it. While the best way to build a good credit score is to pay your bills on time and keep them low, the hacks listed above can help you get a better credit score quickly.