• Angelo Jade Rivera

Tips to improve credit score

Updated: Apr 16, 2019

Understanding credit and how it works

Understanding how credit works is the first step in improving one's credit score. In today's world, credit is utilized in all facets of life. From banks and lenders, insurance firms to landlords, all the way down to employers. Whether you are looking for a mortgage, small business loans, finance a car or seek a job your credit score will play a key role in the decision making and being able to negotiate a better deal. The most utilized score is called the FICO score, which ranges from 300 to 850. Below shows a chart to better illustrate how scores range.

Score Range

Excellent 800-850

Very Good 750-799

Good 700-749

Fair 650-699

Poor 600-649

Very Bad 300-599

After you realize where your current credit score resides within the range, next step is to understand how your credit score is calculated. This will help you see why your credit score is what it is, and guide you towards learning what you need to do going forward to improve your score.

35% Payment history

30% Credit utilization (amounts owed)

15% Length of credit history

10% New credit

10% Credit mix

Checking your credit report

One of the easiest tip for improving your credit score is to simply check on it regularly. Checking your credit score and report can become simple as you checking your bank account. Now, I'm not saying you should check on your credit daily but checking at least once a week or even once a month can become a good habit and allow yourself to be well educated about where you stand when facing potential lenders. Just remember the pie chart as you look through your credit report, as you will have to slowly tackle at what is causing the biggest harm to your credit score first. Which bring us to the next tip.

Pay bills on time

The biggest percentage of the pie is your payment history. After assessing your credit report, first habit you must inherit is to make sure no payment goes overdue. This could be very simple to fix because for some people, it may have been carelessness and simply overlooking how important it is to be on time when paying your bills. My advice to those is to go to each creditor and set up an automatic payment, this can be done via phone or online if they offer self service. But for many, this could be the hardest to fix because your payment history may have taken a toll from your insufficient funds... so how can you find a solution if that continues to happen? Well, if you haven't already noticed by evaluating your credit report... you don't get a derogatory mark unless you are actually 30 days past due. Now, within the 30 days of grace period, you will most likely get late penalty fees from your creditor, at least you will be comforted to know you have a little bit of time to find funds to get back on track.

Look to open credit... IF you don't have any

Not having any credit in your report means bad credit. Financial institutions and lenders want to see history of you paying off loans/debts to determine your creditworthiness to take on more loans. If your credit report looks almost empty, its a good idea to take on small loans to repay.

Don't close your credit accounts

Amounts Owed is 30% of the credit pie chart. Your credit utilization ratio is the percentage of your available credit and its also known as your “debt-to-credit” ratio. At first, closing accounts like credit cards that aren't being used seem like a good idea. But doing so will actually hurt your credit significantly. Closing your revolving accounts like credit cards will actually reduce your available “credit” part of the “debt-to-credit” ratio. By doing so, you are now showing use of higher percentage of credit which can have negative impact on your FICO score. On the contrary, using low percentage of your available credit will have positive impact on your credit score.

Final word

Having good personal credit can be helpful when applying for personal or business loans. You should always strive to have “very good” or even “excellent” credit score if you are the type looking to take advantage of competitive financing options. But like many things in life, fixing your credit will take time; its algorithm behind the score was built that way. So, don't expect your score to jump several ranges with a blink of an eye, and don’t let it allow you to miss opportunities along the way. Credit score is just one of the factors that go into decision making of lenders and institutions, other key factors they look at are not even shown in your credit report. There has been a huge shift in the recent decade with small business owners turning away from traditional banks and seeking out alternative business loans. My point is, just because your credit is poor shouldn't steer you clear from opportunities in your personal or business life... just start working on it and before you know it when similar opportunities down the road arise it will likely benefit you exponentially!

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