Your 3 Step Guide To Improve Credit Score
Improve credit score is a statement. It’s a statement that is easy to make but a bit more challenging to pull off. Challenging that is unless you make it a process. A process requires a set of actions or steps. Steps are easy to make if you understand them and accept that they are good. So approaching the statement, improve credit score, as a set of steps to take will help make it a lot easier for you to improve your credit score.
Your credit score is primarily based on 3 financial habits you make. One, the amount of money you spend. Two, how much of your spending is with credit cards. And three, how good you are at paying off your credit cards. Those 3 steps are financial habits that should be changed if you really want to improve your credit score. It may seem hard to change all of those financial habits, but in the long run, it is worth it. Let’s get started.
Step #1 – Work on Your Payment History (35%)
Payment history is one of the more important financial habits to work on when thinking about changing your credit score. Your payment history makes up 35% of your credit score, which is over one-third of your score. Creditors take your ability to pay them back very seriously and you should to. They interpret missed or late payments as financially irresponsible. Which is why it is very important to be mindful of paying your credit card bills.
Every time you miss a credit card payment or pay late, it is bad news. As a result of the “ding” on your credit score from missed or late pays, your score gets dropped. All late payment damages your credit score, but a late pay over 90 days, can damage your score for up to 7 years; that’s a long, long time. Due to the heavy damage your score can take with a late payment, you are better off paying the minimum amount due every single month on your credit card then paying it late. And keep in mind that the minimums are usually relatively low amounts, which should be easy to pay if you are in a jam.
Step #2 – Watch Your Credit Utilization Ratio (30%)
Your credit utilization ratio makes up 30% of your credit score. Great, what’s a credit utilization ratio? This ratio is the amount of credit you have available to you compared to the amount of credit that you actually use. To get your ratio, add up all of the credit limits that all of your credit cards offer you then compare that amount to your credit card balances. Credit reporting agencies suggest that to have a good credit utilization ratio you should use less than 30% of your credit card limits. For example, if your total available limits equal $10,000, then you would be safe using up to $3000 of credit. The key here is to never max out on your credit card limits. Your credit scores will plunge if you do.
Step #3 – The Length Of Your Credit History (15%)
The length of your credit history makes up 15% of your credit score. Which means that the longer you are actively using credit cards and have credit accounts, the better it is for your credit score. When you are just starting out with your first credit card there is no way for creditors to judge your ability to pay, or keep your credit card use in balance. But over time they can use your history to better understand your credit card habits.
Who Are You?
A librarian will tell you that you are what you read. A doctor will tell you that you are what you eat. A financial advisor would tell you that you are your financial habits. Our financial habits help to determine how much money we get to keep. Poor financial habits can create a low credit score. And when you have a lower credit score, you will be charged more for goods and services. Credit cards will charge you higher interest rates. You will pay higher interest rates on loans. Insurance premiums increase when you have lower credit scores.
So if you use credit cards, have an auto loan or mortgage and buy insurance, there is no way around paying more when you have a low credit score. It really is in your own best interest to work on improving your credit score. And the place to start is to be aware of your financial habits. Monitor your spending habits. Watch your credit card usage. If you are in the habit of charging everything to your credit cards, you pile on the debt and the slippery slope begins. You are your financial habits. Save money by changing those financial habits that effect your credit scores, you will be glad you did.