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How to Improve Your Credit Score

Here are the main contributors, ranging from highest to lowest impact.


Don’t Miss Payments

This one’s pretty clear. If you have a history of missing your payments, creditors are not going to want to lend to you - they want to have confidence that you’ll pay them back.


Have Plenty of Credit, But Don’t Use Too Much

If you have a $10,000 limit on your credit card, and you currently owe $9,500, that doesn’t send a great message to potential lenders about your financial situation. There are two ways to remedy this: 1. Pay down the debt on your credit cards and lines of credit; 2. Get more credit. Note: If your current credit utilization is high, it may not be easy to get more credit.


Have a Long Credit History

Kind of like an entry level job that requires experience, right? Keeping your oldest account open is the best way to ensure this component is always working in your favor - if you don’t have a credit card yet, this is your sign to work on getting one.


Have a Few Different Loans and Credit Cards

Having more accounts works for your credit score in two ways: 1. It shows prospective lenders that other lenders have granted you credit; 2. It shows that you can responsibly manage your finances.


Limit Your Credit Inquiries

In other words, be patient. Yes, more credit can help your credit score, but you don’t have to get 12 credit cards this year. Every time you apply for credit, the prospective lender does what’s called a ‘hard pull’, or inquiry, of your credit report. These are tracked, and if you have a lot of recent inquiries, it indicates to creditors that you may have fallen on hard times - why else do you need so much credit all of a sudden? Inquiries have a limited and temporary impact. Don’t worry about the short-term consequences of applying for credit unless you plan to apply for a larger loan in the near future (e.g. probably not a great idea to apply for 3 new credit cards in the same year you want to get a mortgage).


Conclusion

As with a lot of things in personal finance, patience and planning ahead are your friends. If you haven’t thought about your credit score recently, it might not be a bad idea to get your free annual credit report from TransUnion, Experian, or Equifax just to make sure nothing drastic needs fixing.

 

As always, keep in mind that you don't have to go it alone. Check out my website to see what it's like to work with me and reach out if you have any questions.


If you found this post helpful, help spread the word! Share with friends and family that you think may benefit as well. But remember, this is solely for educational purposes - it's not advice.

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