A credit score is a number that indicates a person’s ability or likelihood to pay their bills on time. This number allows creditors to ascertain the risk associated with approving a potential debtor’s request for credit.
Think of your credit score as your reputation for handling past bills and debts. A higher credit score demonstrates that a debtor has been more diligent with paying their bills and debts. This gives creditors the green light when deciding whether to approve a credit request and the terms of a credit agreement.
Your credit score is calculated based on several different factors, including but not limited to:
- Repayment history
- Amount of outstanding debt
- Length of your credit history
- Types of credit you use
Achieving a high credit score takes time. However, if you consistently employ the following tips, the sooner you will find yourself with an improved credit score.
Pay Your Bills on Time
The best advice we can give you for both improving your credit score and maintaining a good credit score is to pay your bills on time. If you are unable to pay the full amount of debt, ensure that you at least pay the minimum payment by the due date. This will ensure that your repayment history reflects repayment behaviors that future creditors will trust.
Do not skip payments. If you are unable or anticipate that you will be unable to make a payment, we urge you to call your creditor and let them know in advance.
It is important to note that late payments may stay on your credit score for years. Make sure you are diligent in paying your bills on time.
Decrease Your Utilization
Ideal utilization for an optimal credit score is at 35% or less of your total available credit. The lower your utilization is, the higher your credit score will be.
To calculate the optimal utilization, add up all your available credit, including loans, credit cards, lines of credit, etc. Then, multiply by .35 to get your optimal utilization threshold.
If you have fully paid off a credit card and do not intend on using it, we suggest keeping the account open so that your utilization rate will be lower.
Of course, if you decrease your utilization to less than 35%, you will yield great results for your credit score. Alternatively, asking your creditors for a credit increase will also help keep your utilization low.
Pay Your Balance in Full
Paying off your outstanding debt each month is ideal for increasing your credit score. Paying off your debt in full shows creditors that you are capable of fully paying your debts, and that you only use what you are capable of paying off each month.
Bottom Line
Having a poor credit score can negatively impact your ability to obtain mortgages, loans, or credit cards. But it is not impossible to improve it as long as you consistently implement these tips and monitor where your credit score stands and its progress.
