A credit score is a three-digit number, typically between 300 and 850, that predicts how you would likely pay back the loan on time. A higher credit score results in favorable credit terms, while a lower credit score typically below 500 results in a poor score range.
Companies use a scoring model to create your credit score. They are affected by your bill-paying history, number and type of loan accounts, your current unpaid debt, the available credit you’re using, new credit application, or if you have debt sent to collection, bankruptcy, foreclose, and its payment duration and current status.
While credit score criteria vary from lender to lender, credit score matters to avail best interest rates and pay lower credit card and loan charges.
However, you cannot raise your credit score instantly, but you can do it in a couple of months by following the tips below.
1. Review Your Credit Report
The initial step you can do is to pull a copy of your credit report from the credit bureau. In this way, you can immediately know what’s working in your favor or against you. Do this once a year — review each report and see what’s helping or hurting your credit score.
You may also check the report for possible errors. If you have seen one, you may request to dispute and remove them.
Also, if you have seen a series of late payments from previous or old accounts, you can request the bureau to remove them from your credit report.
2. Consolidate Your Debts
If you deal with several outstanding debts, you may want to consider debt consolidation because it can hurt your credit score the most.
Debt consolidation is the process of applying for a new loan to pay off all remaining liabilities and consumer debts. Multiple debts are consolidated into one larger debt or loan, with favorable payment terms — lower interest rate and monthly payment.
In this case, you will not be trapped into bigger debts with substantial interest rates. This is applicable if you’re having difficulty paying your remaining balance.
3. Pay Bills on Time
Payment history has a significant impact on your credit score that’s why you should pay your bills on time. Some tips that you can do includes:
- Create filing system — record in paper or digital for your monthly bills
- Create an alarm, save it on your calendar so you won’t miss any bill
- Set-up automatic digital payments
- You can consider charging all your monthly bills to your credit card if you have one. This strategy will simplify your bill payments, prevent interest charges, and improve your credit score.
Your credit score is one of the most important measures of your financial health. It tells your lender how responsible you can pay. The higher your credit score is, the easier you’ll get approved for loan applications.
If you plan to apply for a loan in the future, you should start reviewing your credit score today.