Your credit score is a vital part of your financial wellbeing. The difference between good and bad credit is more than which way the arrow tips on the barometer; it’s the variance of a monthly payment on a line of credit. Lower credit scores are accompanied by higher interest rates, and therefore equate to larger monthly payments. Working towards your financial goals takes time, but there can be a few items that can be addressed to improve your credit score at a quicker rate.
Credit Card Usage
Credit Card Balances
Having and using credit cards responsibly is one of the most crucial factors in raising your credit score. There is a lot to be said about being debt free and paying off the full balance of credit cards, but the credit bureaus measure both your access to credit and utilization when calculating credit scores.
Continuing responsible credit card use can be an integral part of improving your credit score if you don’t aren’t currently using other forms of credit, such as a car loan or home mortgage. Many credit card issuers report your balance at the end of the billing cycle. However, this only works up to a certain point. Allowing your balances to surpass 30% of your credit limit at the time of your credit card statement will begin to have a negative effect on your score. In order to show creditworthiness, it is best to wait until you receive the credit card statement before paying the balance. That way, the credit bureaus see activity on the account, but your credit score will also reflect that you are paying it down each month.
Increase Line of Credit
As mentioned above, exceeding 30% of the credit limit negatively impacts your credit score, especially if spending is continuous. If the credit card utilization is above 30%, or it looks like it is going to be, try paying down that line of credit to below 30%.
An alternative option would be to ask your credit card issuer to increase your credit limit. This will help to decrease the percentage of available credit used. In turn, using a lower percentage of your credit limit will help raise your credit score.
Clean-Up Collections
A collection account is one of the most derogatory marks against your credit score. If you have an account in collections, take care of it as soon as possible, and your score will raise rapidly as those accounts are closed.
Prior to July 1st, 2022, medical collections remained on credit reports for seven years. New credit reporting laws now allow your credit scores to rise as soon as their medical debt is paid in full.
It is important to remember, the most imperative thing anyone can do for their credit score is to make payments on time. 30-, 60-, and 90-day late notices will have long-lasting negative effects on your credit score. When preparing for you next big purchase, making sure you have a lengthy history of timely payments will factor heavily on your possible interest rates and overall approval.
These tips may not be for everyone. It’s important to note that any changes to your credit score can take upwards of 30 days to reflect on your credit report. If you are looking to purchase a big-ticket item, such as a car or home, reach out to a loan officer a few months before the purchase. A good loan officer can help you prepare your credit prior to formally applying for the loan. Taking these steps and improving your credit score will open up options for lower interest rates and save you a pretty penny on your next big purchase.
Max Lucas
Mortgage Consultant
