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7 Ways To Boost Your Credit Score Right Now
Whenever you apply for a credit card or loan, your credit score is reviewed to decide how likely it will be that you repay the amount on time. In most cases, your credit score also plays an essential role in calculating your personal loan interest rates too. However, building a credit score is a relatively slow process which considers factors such as credit payment pattern over time, revolving credit, type of account, and how often you apply for credit. Here are a few indisputable ways that can help you begin improving it:
1. Ensure that Your Credit Reports Are Accurate
Credit reports can often be inaccurate, and this directly leads to a poor credit score. According to a 2012 study from the Federal Trade Commission (FTC), 25% of consumers had at least one error on one of their credit reports. Hence, it is crucial that you review your credit report against errors or discrepancies by credit bureaus like TransUnion, Equifax, or Experian in the U.S. or CIBIL in India.
Here's a checklist of questions you can use to help you spot errors if any:
- Is your personal information correct?
- Are all your credit accounts being reported?
- Is the late or missed payment information correctly listed?
- Are there any accounts or applications listed that you don't recognize?
- Are there items from decades ago that are still appearing on your report?
2. Highlight What Needs to Be Improved
If your report reflects a poor credit score, it may be due to various factors. To improve your credit score fast, focus on the possible reasons, and work on them one by one.
Here are the significant factors that impact your credit score:
- Making late payments affects your payment history, and bad payment history has the most significant effect on your credit score.
- If you've recently started using a credit card, there isn't a lot of data that can help. So, you'll need to be patient and wait for your credit score to improve.
- Lenders want to ensure that you can handle different types of credit. So, if the only credit you have is through your credit card, then it may reflect negatively on your credit report.
- Applying for many credit cards in a short time may worry creditors that you're financially overextended.
3. Strong Credit Age
A good age of credit history is ideally 5 years or up. So, continue making small charges for at least 5 years and pay them off on time to have an excellent credit history. To start out early, ask a friend or relative with a good credit history to add you as an authorized user. This way, you will not be under pressure to pay and still be able to create a credit history.
4. Open New Credit Account Only When Needed
Opening multiple accounts to have a better credit mix is a fairly common assumption which may not improve your credit score. Additional credit cards, in fact, will not just tempt you to spend more, but will also create too many hard inquiries that can influence your credit report.
5. Leave Unused Credit Accounts as They Are
If you've applied for new cards, don't close the old ones. 10 years after you close your credit card, the credit bureau removes its history from your credit report. This shortens your average credit age and causes your credit score to drop.
6. Monitor Your Credit
When you check your own credit report, a soft query is pulled, which does not affect your credit score. So, review your credit report every few months and identify how you can manage your credit better.
7. Time Your Applications Wisely
The effects of a hard inquiry can last from 6 months to 12 months. So, refrain from applying for a loan or a credit card within short time frames. This way, you can keep your hard inquiries at a minimum.
Improving your credit score takes time, but when optimized, it can open many doors for you. It can influence your personal loan interest rates, your life insurance rates, and other factors. So, ensure that you follow these steps and stay consistent.
Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India's first app-based credit-line.
Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters and when they want to get a loan.
He has made it his life's mission to help and educate people on various financial topics, so email him your questions at firstname.lastname@example.org.