{"id":5059,"date":"2019-01-07T12:01:56","date_gmt":"2019-01-07T17:01:56","guid":{"rendered":"http:\/\/www.avant.com/blog\/?p=5059"},"modified":"2022-12-07T13:32:07","modified_gmt":"2022-12-07T18:32:07","slug":"if-youre-serious-about-improving-your-credit-score-follow-these-steps","status":"publish","type":"post","link":"https:\/\/www.avant.com\/blog\/borrow\/if-youre-serious-about-improving-your-credit-score-follow-these-steps\/","title":{"rendered":"If You\u2019re Serious About Improving Your Credit Score, Follow These Steps"},"content":{"rendered":"

Many of us faced times where we had no choice but to default on our payments. Sometimes it\u2019s out of our control and we neglect to exhaust all options not to fall behind. That one mistake in your life might have hurt your credit score and now you\u2019re frantically trying to find ways to get back to where you were. Figuring out how to improve your credit score isn’t as difficult as you may think.<\/p>\n

Forget about the past and focus on the present. If you\u2019re looking for a way to improve your score by 100+ points within the next month, I can\u2019t help you. However, if you\u2019re truly serious about improving your credit score and getting back on track, then keep reading.<\/p>\n

I won\u2019t bore you to death about the same old advice that gets repeated over and over again, which is to always pay your bills on time. It\u2019s a lot easier said than done. If it were that simple, everyone would have an excellent credit score. On the other hand, I do believe that knowing how your credit score is calculated is still very much important to improving your score.<\/p>\n

Let’s Start With the Basics<\/strong><\/h2>\n

I won\u2019t go too much into detail with this since this is all information that can be found online, but here are the five different factors of how your score is calculated:<\/p>\n

Payment History: <\/strong>This is single-handedly the most important factor. It comprises 35% of your credit score calculation and is a clear indicator that many creditors use to determine if you\u2019re going to default on a future loan.<\/p>\n

Amount Owed:<\/strong> This is the second most important factor that goes into your credit score and it comprises 30% of your score. If you\u2019re always maxing out your credit cards and \u201crecycling\u201d your available credit every month, it shows that you\u2019re struggling to pay down the balance. Keeping your overall credit utilization under 30% is the rule of thumb.<\/p>\n

Length of Credit: <\/strong>This factor only comprises 15% of your score. This is why you should think twice about closing any accounts that are \u201ccurrent\u201d and have a long credit history.<\/p>\n

New Credit: <\/strong>The number of times since you opened an account compared to the total number of accounts you already have is also a factor. This also includes any recent inquiries and the velocity of how fast you open new accounts. These factors comprise 10% of your score.<\/p>\n

Types of Credit: <\/strong>Lastly but not least, the different types of accounts you have listed on your report are also a factor. Some of the various accounts you can have that affect credit score<\/a> are: installment loans, auto loans, student loans, credit cards, mortgages, or even home equity line of credits. If you\u2019re able to juggle all different types of credit, this will be a positive factor to creditors.<\/p>\n

So What\u2019s the Secret to Improving Your Score?<\/strong><\/h2>\n

Improving your credit score<\/a> takes time. If you\u2019re looking to improve your score so you can get the best mortgage or auto rate next month, you might want to hold off on that big purchase. The secret to improving your credit score is to be more financially responsible. Your credit score is a three-digit number that tells creditors how likely you\u2019re going to default. Every positive action you take can paint a completely different score each month.<\/p>\n

If you\u2019re able to instill good financial habits, a good credit score will follow. Think about it carefully. Think about all those times your balance never seemed to decrease. When you pay your minimum payment (or even a little higher), did you find that you were using your available credit again the following month? It\u2019s a vicious and never ending cycle unless you make drastic changes to stop it.<\/p>\n

There are two different types of scenarios we\u2019ll look over. The first one is for those whose credit score is super low to the point where getting access to regular credit cards is out of the question. The second scenario is for those who already have an established credit history but are looking for ways to pay down their debts to improve your score.<\/p>\n

If Your Credit Score Is Less Than Perfect, Do this<\/strong><\/h2>\n

You\u2019re going to face an uphill battle if your score is less than perfect. My definition of this is the individuals whose credit score isn\u2019t high enough to even get a basic credit card to start rebuilding their credit. This is the toughest part. You want to rebuild your credit<\/a> but you don\u2019t even have the opportunity to prove yourself that you can pay your bills on time.<\/p>\n

This may apply to those who just got out of bankruptcy or for those who had delinquent accounts go into collections. Whatever the case, it\u2019s not impossible to get out of this slump. So what exactly do you do?<\/p>\n

The first step may be to go apply for a secured credit card. A secured credit card will require you to pay a deposit upfront (usually starting at $200) and this deposit will establish your credit line. The most important part of this is to make sure that the creditor is reporting your payments to all three credit bureaus: Experian, Equifax, and Transunion<\/u>.<\/p>\n

So if you pay a $500 deposit you will have a credit card with a $500 limit. I know even saving $500 can be a struggle to some but if you\u2019re able to do this, you\u2019ve already won half the battle.<\/p>\n

Now that you have your first secured credit card, this is your time to shine. Use this opportunity (with your zero balance) to always keep your total balance under 30% of your limit. So in this example, you should always keep your balance under $150. Another tip is to make multiple payments per month. Don\u2019t always wait until the last minute on the due date to pay off your account. Creditors can see your payment activity so making multiple payments every month may be a good sign.<\/p>\n

Continue this process every single month. Sign up for a free credit monitoring service like Credit Karma, to see how your credit score is trending. This is a good habit and you\u2019ll be able to see how timely payments and low credit utilization can affect your score.<\/p>\n

After you improve your score, you may have the option to ask your creditor to change your account to a standard credit card to get your deposit back. Alternatively, the creditors might also increase your credit limit without asking for an additional deposit.<\/p>\n

Improving Your Score If You Have High Debt<\/strong><\/h2>\n

If you\u2019re in a situation where you\u2019re credit score is \u201caverage\u201d but could be better, chances are that you\u2019re probably carrying too much balance on your credit cards. Thirty-five percent of your credit score is determined by your overall credit utilization. This means that you\u2019ll have to get your balance down to roughly 30% of your limit in order to have the best shot at improving your score.
\nSo how exactly do you do this? It\u2019s a lot of work that\u2019s going to take a lot of sacrifices. Here\u2019s what you should do:<\/p>\n

    \n
  1. Take a look at your monthly budget<\/strong>: Print out the last 6 months of your credit card statement. Itemize every single expense and see where your money is going.<\/li>\n
  2. Question Every Single Expense<\/strong>: Take a look at how and where you\u2019re spending your money. Think carefully and think logically. Ask yourself if it was absolutely necessary to make that one purchase.<\/li>\n
  3. Revisit subscriptions<\/strong>: See if there\u2019s any recurring expenses that you can cut out. Think cell phone plans, online media plans, and insurance plans. Is there room to eliminate these or search for less expensive options?<\/li>\n<\/ol>\n

    After you carefully look over your expenses, the next step is to create a habit to save as much money as possible. I know it\u2019s a lot easier said than done, but this is the only way you\u2019re going to pay down your debts. You need to spend less than what you earn. Period.<\/p>\n

    You need to start questioning every purchase you make. Ask yourself if this is a need or a want. Do not fall into the mindset that your available credit is \u201cfree money\u201d that you can pay back at a later time. This is a trap that many people fall into.<\/p>\n

    Getting out of debt or paying down your balance is a marathon. You will absolutely need to make sacrifices along the way but the feeling of accomplishing this feat will be amazing. The reason why instilling these financial habits is so important is to make sure you do not<\/u><\/strong> fall back into debt in the first place.<\/p>\n

    Another great habit is to pay down your credit card multiple times per month. Paying down your balance as you go will decrease the amount of interest you pay. The reason is because your interest is calculated based on your average daily balance. By making multiple payments per month, you\u2019re decreasing your average balance as well as making a concerted effort to pay down your debts.<\/p>\n

    Other Tips to Improve Your Credit Health<\/strong><\/h2>\n

    Now that you understand the core essence of improving your credit score, here are other methods that I highly recommend that you do:<\/p>\n