Hi there my lovelies! Hope you all are doing well and staying safe. Are new to credit and don’t know how to boost your credit, then you are in the right place. Today, I will talk to you about building credit.
What is credit?
According to Experian, credit is the ability to borrow money or access goods or services with the understanding that you’ll pay later. Lenders, merchants and service providers (known collectively as creditors) grant credit based on their confidence you can be trusted to pay back what you borrowed, along with any finance charges that may apply. Having a good credit is crucial in get home, auto loans, low interest personal, student loans and credit card.
Your credit history is summarized in files known as credit reports, compiled by three independent credit bureaus—Experian, TransUnion and Equifax. Banks, credit unions, credit card issuers and other creditors voluntarily report your borrowing and repayment information to the credit bureaus. It is important to ensure that your credit report is showing accurate information. You are entitled to one free credit report every year. Just go to annualcreditreport.com and pull your credit report every year. It will also give you red flags on any potential fraudulent charges.
How does credit work?
Nowadays, creditors typically look to your credit history—your record of borrowing and repaying funds—as a first step in determining whether to issue you credit. It is important to have a good credit history. The higher and positive your credit history, the better your credit score. Any delinquencies in your credit history will negatively negative effect your credit score.
Credit score is three-digit number that is used to narrow creditors’ lending decisions. It often used as the first step in deciding whether or not to issue credit. Your credit score provides the information on your credit reports to something that’s easy to interpret, and does so in a fair way that minimizes the possibility of bias. You can get your free credit score at Credit Karma.
Why is credit important?
A good credit is needed in every steps of your adult life. Landlords may check your credit when deciding if they’ll rent you an apartment or determining how large a security deposit to require. Insurance companies may use your credit scores as factors in determining your rates. As mentioned above, utilities companies may check your credit before deciding to let you open an account or borrow equipment. Credit is a tool that can help you buy things you need now and pay for them over time. If you want to apply for federal jobs, your credit will be pulled to verify your identity, and for other purposes defined by federal law.
How to boost your credit?
In order to boost your credit, don’t expect results overnight. Credit restoration takes time, often six months or more. It’s never a bad idea to consult with a credit expert if you have questions. Moreover, dealing with debt goes hand-in-hand with taking a closer look at your spending habits. Don’t bite more than you can chew. Check out my post on my own current journey towards financial freedom. When you apply for job, your potential will pull your credit history as part of your background check and making a hiring decision. Credit is also important to buy phones, through money payment, or even get a credit increase.
a. Pay your bills on time:
Paying your bills on time is key to any attempt to improve a credit score. you don’t have to pay off your bill. You just have to make sure that you are at least making the minimum required payment on time. If you are having problem paying your bill, please explain the your current financial situation with your credit. They will often work with your to make a plan without negatively effecting your credit. However, if you just miss your payment that will have a negative effect on your credit and a pattern of doing it over the years can be quite long-lasting.
b. Balance your credit:
Another way to inch your credit score higher is by thoughtfully managing the type of accounts you have open, including limiting consumer credit accounts (credit cards, store cards, store lines of credit). Credit bureaus look for a nicely balanced credit portfolio of things like a mortgage, car loan, student loan, and consumer debt. However, one mistake you can have is having a lot of cards. If you have an account that you are not using, just close the account. When I close an account, I just make sure I am not closing my oldest card because having a long credit is important.
c. Credit history length.
Credit agencies like to see accounts that have been open for a more extended period of time and managed responsibly since the account opening. You can check the length of of your oldest credit in your credit report and then can help improve your score by closing some of the recent ones. That’s why, before closing accounts, double-check how long they have been open. Accounts that have a more than 10-year credit history are actually helping your score. Only close accounts that are only few years old.
d. Minimize hard inquiries:
Every time you apply for new line of credits or credit cards, your credit report if pulled, which is known as hard inquiries. That can have a negative impact on your credit score. Hence, if possible stop applying for knew credit cards. If your goal is to improve your credit score, then minimize the new credit application, even better if you stop applying for new line of credits. Before closing accounts, double-check how long they have been open. Accounts that have a more than 10-year credit history are actually helping your score.
e. Improve Your Debt Ratio:
This is very important. Credit agencies prefer to see consumers with a credit utilization ratio of less than 30 percent. Your credit utilization ratio is the total of your outstanding debt as a percent of all of your credit limits combined. Try to aim to keep the ratio below 5%. The lower the better. If all your credit cards have balances near the limit, your credit score will suffer, since your debt ratio will increase. A great, fast way to raise your credit score is to keep your credit utilization low. Additionally, in order to boost your credit score in under six months, pay off all of your credit card debt.
f. When paying of your credit balance – do so in steps:
If you are paying of your credit balance don’t pay off in one payment. The reason to do it this way is most credit card companies won’t reflect a paid-off account for a few months. So, just pay it down first, and they will report your account with a low balance, which will increase your scores. And then pay it off entirely. This is will have a more positive impact on your score. When I received my first credit card, I would always pay it off right away and did not see any improvement on my report. It’s during that time I dad told me about this, and before I knew it, I started to see boost in my credit score.
g. Ask for Credit Limit Increases: If you don’t have the financial ability to pay off your credit cards in order to get them below a 30% utilization ratio, ask for credit limit increases, which gives you more available credit and therefore boosts your score. The key here is to be responsible with the limit increase and not start spending more.
h. Choose one card and use it responsibly each month:
Select one credit card and use it every month for expenses that you would typically pay for with a debit card or cash. And then, be sure to pay this card in full every month. However, in order to boost your credit, be sure to get your statement first and then pay off the balance. This way you will have something reported to the credit bureau every month. In addition, not only is something being reported to the credit bureaus. The bureaus are seeing that you are paying a bill in its entirety, consistently.
My dear lovelies! With lots of patient and using your credit responsibly, you can boost to credit and have a sound financial health.
Hope you enjoyed my post as much I enjoyed writing it. What other steps have helped improve your credit score? Please leave your feedback. Let us work together to lead create a sound financial health for ourselves.
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