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Credit scores: The Foundation of Your Financial Health
Before we get into “how to boost your credit score," why is it so important?
Your credit score isn't just a number; it's basically your ticket to life's most significant financial milestones. Want to buy a home? Your credit score decides if you get a mortgage and what interest rate you'll pay. Dreaming about that new car? Yep, your credit score plays a part there too. The higher it is, the more opportunities open up for you.
Understanding Your Credit Score: Knowledge is Power
Learning about how to boost your credit score starts with understanding what it is. Your credit score is a three-digit number generated from the information in your credit report, including your payment history, the amount of debt you owe, the length of your credit history, and more. Credit scores typically range from 300 to 850, with higher scores representing better credit.
There are several different types of credit scores, but the most commonly used is the FICO score. It's split into five main categories:
- Payment history (35%)
- Amounts owed (30%)
- Length of credit history (15%)
- New credit (10%)
- Types of credit used (10%)
Understanding these categories is key to learning how to boost your credit score.
#1 Pay Bills on Time
Our first tip for how to boost your credit score? Pay your bills on time.
The most influential factor in your credit score is your payment history, accounting for 35% of the total. Missed payments can seriously hurt your score. So, set up automatic payments or reminders to make sure you're paying bills on time, every time.
If you want an AI FinTech app to help make sure you're paying your bills on time (for free), Cleo will keep you up to date with her monthly bill tracker and payment reminder.
She's nice like that. 💙
#2 Keep Your Debt in Check
Keeping your debts in check is another effective way to boost your credit score. The FICO score considers the total amount of debt you owe, but it pays special attention to "credit utilization," which is the percentage of your available credit that you're using. Try to keep your credit utilization under 30%. This shows lenders that you're not over-reliant on credit and can manage your debts responsibly.
You're an adult now. It's time to do adult things like manage your debts. 💅
#3 Play the Long Game
Boosting your credit score isn't just about the short term. It's a long game, and that's where the length of your credit history comes in. This category considers how long your accounts have been open and the average age of all your accounts. The longer your credit history, the better your score. So, if you're considering closing an old credit card account, it might be worth rethinking that. Keeping your old credit card account could actually help to boost your credit score.
#4 New Credit Isn't Always Bad
Another key aspect of learning how to boost your credit score is understanding new credit. While opening new accounts can cause a small, temporary drop in your score, diversifying your types of credit can help in the long term. This is because lenders like to see that you can manage different types of credit responsibly. Just remember to only open new accounts when necessary and when you're confident you can manage them. It's not an excuse to go for brunch. 👀
#5 Monitor Your Credit Report
Did you know you can get a free copy of your credit report from each of the three major credit bureaus every year? Monitoring your credit report can help you understand how to boost your credit score. You can see the factors affecting your score and check for any errors. If you find errors, dispute them. Incorrect information on your credit report can drag down your score and we don't want that for you.
Check out How to Get a Free Credit Report for tips on how to request one from Equifax, TransUnion, and Experian.
#6 Stay Patient and Consistent
Boosting your credit score isn't a sprint; it's a marathon. Patience and consistency are key. Keep making on-time payments, keep your debt levels low, maintain old accounts, manage new credit wisely, and monitor your credit report. These actions should gradually improve your score, opening up new financial opportunities for you.
Remember, everyone's credit history is unique, and what works best for you might not work as well for someone else. Keep learning, keep improving, and keep striving for that top-tier credit score. You've got this. 🚀
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Big love. Cleo💙
*Eligibility requirements apply.