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How to Raise Your Credit Score

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Your credit score is always a part of your life whether you pay attention to it or not. So, it’s extremely important to make it a top priority when it comes to your financial health. With a poor credit score, you will find yourself unable to accomplish the things that you want to without paying huge penalties. This includes things like getting credit cards, home loans, car loans or even renting an apartment, among others. If they have already taken abuse, you can rest assured there are ways to raise your credit scores. But, first you should understand how they work.

Raise Your Credit Score

Understanding How It Works in Order to Raise Your Credit Score

Your credit scores are calculated using by looking at a combination of different types of histories, account types, payments and inquiries. For example, your actual use of credit only accounts for 30% of your score, while the history of your payments is 35%. In addition, how long you have had credit accounts for 15% in this model, account types make up 10% and inquiries on your credit account for only 10%. This means that even if you have a lot of debt to handle, you can significantly improve things for yourself by making your payments on time.

Paying Your Rent on Time Can Raise Your Credit Score

There are certain things that you would usually see on a credit report and rent was not one of them until recently. Below is a list of what has traditionally been mentioned in your report.

  • Debt from credit cards
  • Educational loans
  • House payments
  • Loans on installments
  • Liens from taxes
  • Debts held by collectors
  • Utility bills and phone bills that are unpaid

Many property owners and managers are now being encouraged to report rent payments to the different credit reporting agencies in a bid to increase the scores for sub -prime consumers. Bureaus like Transunion and Experian are making this even easier for them to report by setting up special services to report payment histories of renters. In this manner your property manager can send in information each month on the timeliness and amount paid, in addition to any extra owed. In order to make it an even bigger draw, Transunion in specific does not charge for this service. And, if requested, they will share this information with other national reporting companies.

Experts have supported this decision by adding some great data to show that this certainly a credit improving strategy for consumers. One such expert found that 79 % of consumers found an increase in their previously reported scores within just one month of renting a new apartment. This is a huge opportunity if you are looking to raise your credit score. It is worth your time to find out if your management company or landlord reports to the national agencies. If they don’t, simply ask them to! Don’t miss out on such a small way to make giant difference to your credit score.

Some Other Ways to Raise Your Credit Score

Rental agencies and landlords aren’t your only opportunity to start exploring. There are other providers that may not currently report your payments that can. You should always ask if they do report to the credit agencies and if they don’t, you might be able to convince them to. It is also very important to remember that even the service provider in question does not report accounts in good standing, your history may be reported if you don’t pay or if you pay them late.

So, besides paying on time, what else can you do to raise your credit score?

  • You can set your payments up with automatic withdrawals on a twice a month schedule. In addition to reducing your debt in a swifter manner, this will also keep you from ever missing any of your payments or paying late on anything. It also allows you to reap the reward of lowering your credit utilization on a daily basis.
  • Keep a watchful eye on your credit report. You can check it for no cost at annualcreditreport.com. If you find any errors, you must dispute them for them to be removed. It’s a necessity for you to protect your report from erroneous negative marks because no one else is going to check it for you.
  • Work on increasing your credit limits, however, just because they give you more doesn’t mean you should use it. This will lower your credit utilization and bring your score up.

Always remember that it is your credit score and you are the one that has to make the decision to take control of it. The ways that you pay your bills have a direct effect on you reported score, so make sure you are following the steps set for here, and you will have it improved in no time!

Importance of a High Score on Credit

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Sometimes we wonder about the importance of a high score on credit for our financial decision. Well, a credit score is a numerical figure which shows a consumer’s behavior on his payments and debts he has taken. In the last decade, the importance of a high score has risen and people are now concerned about their credit scores. This is because of various reasons we shall discuss in this article.

Importance of a High Score

Why is a high credit score important?

When we talk about improving our finances, we need to pay attention of everything that revolves around money, including our credit ranking. Let’s discuss the four most important reasons for this.

Makes you financially responsible

Well, to be responsible in your finances you must look at your credit obligations so that you keep control of your money. When you review your score, you will adopt habits that will make you responsible in you finance decisions.

High score leads to more financial opportunities

Among the opportunities are low interest rates on any loans you apply for. A good credit rating makes you a low risk and reliable borrower and lenders would be happy to offer you lower rates. Even employers review your credit report and a bad score can make you lose a dream job. So, importance of a high score should not be ignored.

Avoids identity theft

There are many cases when someone else is using your name to borrow money and not paying back. If you don’t review your credit rating you might not notice it before it’s too late and you end up having a stained credit history. If you suspect that something is wrong when you monitor your credit rating, you can act immediately.

Doesn’t let you fall deeper in financial crises

When you keep an eye on the credit rating, you will always know how much debts have been taken and how much you can afford before they get out of hand. You can stop before the debts cross their limit. It you do not pay attention, you can end up in serious consequences. Therefore, staying in touch with your credit score will tell you what you owe and what amount can you easily afford to borrow without damage to your rating.

Calculating the credit score

If you understand the importance of a high score, you must know how it is computed. Well, you do not have to do the calculations yourself and the real formula is still not known by the public. However, some credit score estimators are available online that will do the working for you. Among them are creditcards.com, freecreditscore.com and the free calculator on MyFico website.

To understand fully, you must understand that there are five categories that affect the calculations of your credit rating.

Your Payment history.

The history of your previous payments forms thirty five percent of the overall score. They show the persons payment behavior. So, if in the past you had been making delayed payments, your credit rating will be greatly affected. Keeping up a high score require you to make timely payments.

Total amount of debt

The more debt you have, the lower your credit score will be. Almost thirty percent of your score depends on the total debt you have taken. So before taking further debt, even through a credit card, you must know where you stand. This way you will maintain financial stability and a high score. If you want to borrow more, you need to pay some existing debts to maintain your rating.

Your Credit history

Your previous credit history affects fifteen percent of your current score. Previous accounts help you to make a high score so you should try and keep your old accounts. However, they have to be operated and not just opened and unused. Moreover, using your accounts also mean that more payments need to be made in time. If you know that importance of a high score, you must make timely payments.

Type of debts you owe

This might seem like a very tiny part as it forms ten percent of your credit rating. But, you should not ignore it. It involves different kinds of debts that a person owes. You should be aware of the fact that three credit card debts will be counted as just one. One should keep installment and revolving debts (credit cards & personal loans, correspondingly)

New credit

If you are applying for a new loan, remember that your lender will ask for a copy of the credit report. This will form at least a ten percent of your overall credit score. It will also be stated on your reported and can lower your score.

All these factors are used to compute the credit score. So if anyone wishes to improve their score, they must work on these five categories. Improving the ones that consume a larger ratio will help you to get a high credit score.