by Shane Adair, Marketing Manager
Your credit score is a vital aspect of your financial profile. In practical terms, it indicates the level of risk associated with lending or extending credit to you, a concept also called creditworthiness. While your credit score is largely determined by your past record of activities like paying bills on time, utilization of existing lines of credit and some other factors, you can quickly start improving it if you want - or need - to. Keep this advice in mind and you won't have to worry about how to improve your credit score - you'll have some practical steps to take that will help it improve over time.
Pay your bills on time
Consistently paying bills on time is one of the easiest ways to improve your credit score in a relatively short period of time. If you find yourself consistently running behind on bills, which are generally fixed expenses or fall within a recognizable range, you likely need to cut your spending. This isn't easy, but it's vital to improve personal financial management and can easily lead to significant benefits in the long run.
Once your monthly payment obligations are at a manageable level, there are several common-sense steps to make to ensure you pay on time. You can schedule automatic payments through many service providers and tie them to a bank account or credit or debit card. If you would rather maintain closer oversight, you can set calendar reminders, as Debt.org suggested, to help you make sure to pay your bills each month.
Understand the long-term advantages of credit history ...
The longer you maintain a positive credit history, the more your score can increase. Credit history indicates how long you've had credit extended to you, and a long history of having credit cards and loans open and paid on time helps to indicate that you're a low-risk, dependable person in a financial context. As Credit.com pointed out, there's not much you can do to improve credit history in the short term outside of having a trusted friend or relative with a strong credit history add you as an authorized user to one of their cards.
However, opening a few cards now will pay off down the road, as long as you stay current with payments. Once these cards get to the five-year point and beyond, assuming they're paid on time and credit utilization remains low, they will help boost your credit score.
... But don't open too many new accounts at once
Opening new accounts is a necessary part of personal finance. You should never worry about occasionally applying for a new card or loan. However, a spree of applications can indicate a risk to lenders, as Debt.org said. This step is relatively simple - just be mindful of how frequently you're applying for loans and credit cards. Be sure to do so with restraint and you can count on this aspect of the credit score to serve as a help, rather than a hindrance.
Don't use too much credit
Credit cards are very useful for making big purchases and paying them off over time, whether it's a planned expense or an emergency. Putting too much debt on your cards can turn them into a liability when it comes to credit scores, however. Bankrate pointed out that the various credit scoring systems have different utilization limits, but keeping the amount of credit you use at or under 10 percent is enough to see beneficial results in all formats.
TAB Bank is here to provide the basic financial building blocks that make managing your finances, and your credit score, that much easier. To learn more, get in touch with us today!
As you look to improve or understand your credit score and the impact of it on your financial choices and planning check out out this blog post titled, "Understanding your credit score." Click on the tile below to access the post.
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