Your credit score is a three-digit number that has to be a top financial priority.
The scores, which are calculated monthly by FICO, represent your ability to pay back money you've borrowed. The higher your score, the more likely lenders will be comfortable loaning you money in the form of personal loans, mortgages and more. Additionally, you can also qualify for lower interest rates that will help you save money.
However, if you have a low score, lenders are more hesitant and interest rates will be higher. Credit scores are more delicate than you might think. Miss a credit card payment here and there, and your score will decline. Even applying for new lines of credit will knock your score down a few points.
Unfortunately, it's much easier to damage a credit score than it is to build it up. But if you remain committed and stay on top of your finances, there are a few ways you can boost your credit score.
No. 1: Start paying off credit card balances
According to FICO, 30 percent of your credit score is based off the amount of money you owe. Having a balance doesn't signal you're a risky buyer. Instead, your score loses points if you're always carrying high balances and are close to maxing out your lines of credit.
"30 percent of your credit score is based off the amount of money you owe."
As such, the faster you can start paying off credit card debt, the better your score will turn out. In an ideal world, you'd pay off all of your balances at the end of the month, although this is not always realistic given the demands of life.
When you're paying off debt and lowering your balance, you'll also be lowering your credit utilization ratio, which is the percentage of credit you're using out of all your credit lines provided. NerdWallet recommended you don't exceed a 30 percent credit utilization ratio, and you can avoid that by paying off your balances as fast as possible.
No. 2: Pay on time
You must pay your bills on time. While you might be able to persuade the lender to forgive the late payment here and there, don't think you can turn this into a habit without any consequences.
Whenever you get a new statement or bill, write down the due date on a calendar or put it into your phone and set a reminder. If you're still unsure of whether you'll pay the bill on time, setting up automatic payments is a must.
No. 3: Don't borrow too much credit at once
The length of your credit history accounts for 15 percent of your score. The longer you keep a card open, use it and remember to make every payment, the higher your score.
But you have to avoid opening too many lines of credit or borrowing money in a short period. Newer accounts will actually harm your score and lenders will notice the rapid buildup of credit and will likely become suspicious and weary.
No. 4: Vary your credit
Credit cards aren't the only type of money you should borrow. Having multiple types of loans and successfully handling all of them will prove to be beneficial for your financial health.
Other than credit cards, mortgages, auto loans and student loans will help you raise your score after making all of the monthly payments.
No. 5: Think of the future
The present may look bleak if your credit score is average, subpar or poor. The good news is, though, as you slowly pay all of your bills, your score will start to increase and eventually, old credit issues will not count for as much, FICO stated. As the years pass, your good credit habits will eventually outweigh the bad habits.
Building up your credit score might seem daunting, but with a strong commitment, it's entirely possible.
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