5 easy ways to get a great credit score

Getting a great credit score can be easier than you think.

Here are 5 easy ways to increase your credit score:

Why your credit score matters

For better or worse, your credit score is the gateway to a range of financial products such as mortgages, auto loans, personal loans, credit cards, and private student loans.

Your credit score can also be used when you apply for insurance, rent an apartment, or buy a cell phone.

FICO credit scores are among the most frequently used credit scores and range from 350 to 800 (the higher, the better). A consumer with a credit score of 750 or higher is considered to have excellent credit, while a consumer with a credit score of less than 600 is considered to have bad credit.

5 ways to increase your credit score

1. Check the accuracy of your credit reports

It is essential that you get a copy of your credit reports and check them carefully. Why?

The Federal Trade Commission find that 5% of consumers had one or more errors on their credit report.

There are three main credit bureaus: Experiential, Equifax and TransUnion.

Each credit bureau collects information about your credit history and develops a credit score that lenders use to assess your risk as a borrower. Under federal law, you have the right to view your credit report every 12 months with each credit bureau. Since each credit bureau may have different information about your credit history, your credit score may vary among the three lenders.

To get a free copy of your credit report, you can visit Annualcreditreport.com.

If you find an error, you should immediately report it to the credit bureau so that it can be corrected.

2. Show you have a good financial history

To demonstrate that you are financially responsible, you must develop a good financial history.

Your payment history is one of the most important parts of your credit score. To ensure payments on time, set up automatic payment for all of your accounts so that funds are directly debited each month.

FICO scores are more heavily weighted by recent payments so that you can “replace” a past missed payment by developing a more recent on-time payment model. Therefore, if you have an overdue payment, pay off the balance.

It also means not skipping any payments, as missed payments can also hurt your credit score. Missing a payment can stay on your credit report for up to seven years.

The credit bureaus also examine the age of your account, which is how long your accounts have been open and in good standing.

The longer you can keep a credit card in good standing, the better (so you can increase the age of your account).

3. Manage the use of your credit card

Lenders assess your credit card usage or the relationship between your credit limit and your spending in a given month. If your credit usage is too high, lenders see you as a higher risk.

Ideally, your credit usage should be less than 30%. If you can keep it below 10%, that’s even better. For example, if you have a $ 10,000 credit limit on your credit card, you should ideally spend less than $ 1,000 in any given month.

Here are some ways to manage your credit card usage:

  • set up automatic balance alerts to monitor credit usage
  • ask your lender to increase your credit limit (this may involve a high demand for credit, so check with your lender first)
  • pay off your balance several times a month to reduce your credit usage

4. Improve your debt ratio

Many lenders assess your debt-to-income ratio when making credit decisions, which could affect the interest rate you receive.

A debt-to-income ratio is your monthly debt payments as a percentage of your monthly income. Lenders focus on this ratio to determine if you have enough excess cash to cover your living expenses and debts.

A lower debt-to-income ratio should be your goal, as that means you have more income that can be used to pay off new debt, like a loan.

Two ways to lower your debt ratio: either pay off outstanding debt or earn more income (or both)

5. Consolidate credit card debt with a personal loan.

If you have credit card debt, the good news is, there is something you can do.

One option is to consolidate your credit card debt into one Personal loan at an interest rate lower than the current interest rate on your credit card.

A personal loan can therefore save you interest charges over the repayment term, which is usually 3 to 7 years depending on your lender.

A personal loan can also improve your credit score. Why?

A personal loan is an installment loan, which means that a personal loan has a fixed repayment term. Credit cards, however, are revolving loans and do not have a fixed repayment term. Therefore, when you swap credit card debt for a personal loan, you can reduce your use of credit and diversify your types of debt.

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