Credit Score

What is a Credit Score? Improve Your Credit With These Tips

Written By: Eric Williams
Reviewed by: Mike Reyes
Last Updated November 1, 2023

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house poor infographic about credit scores

A credit score is a three-digit number that indicates the creditworthiness of the client. These scores are computed using various models and methods. The most common types of credit scoring models are FICO scores and VantageScore.

Fair Isaac Corporation developed the FICO scoring model, which considers five factors to determine a client’s creditworthiness: payment history, level of indebtedness, types of credit used, duration of credit history, and new credit accounts.

FICO scores range from 300 to 850. Scores of 800 or higher are considered exceptional, scores of 740-799 are considered very good, scores of 670-739 are deemed good, scores of 580-669 are fair, while scores of less than 580 are considered poor.

In 2006, the three major credit bureaus, Experian, TransUnion, and Equifax, created a new scoring model called VantageScore. VantageScore considers four factors: payment history, total balance, recent financial behavior, and utilization ratio.

VantageScore’s latest version, like FICO’s, ranges from 300 to 850. According to VantageScore, ratings between 300 and 549 are very poor, 550-649 are poor, 650-699 are fair, 700-749 are considered good, and 750-850 are excellent.

Tips on How to Improve Credit 

Credit scores are important indicators of a client’s financial health. If your rating is low, lenders or financial institutions may refuse to work with you, leaving you out of the competition. As a result, it is critical to work on improving your credit using smarter strategies.

Tip #1 The first tip is not just a tip on how to build credit since it is a piece of advice to always be aware of the record of your repayment of debts. Every year, the three major credit bureaus allow customers to receive a free credit report and see where their credit scores stand. Only after reviewing their scores can customers start taking steps towards building a trustworthy history. 

Furthermore, it is critical to go over your report and look for errors. There could be false information on your payment history, unpaid personal or payday loans online in California, or personal data that needs to be corrected right away. If you detect an error, you should immediately dispute it. This will allow you to improve your rankings.

Tip #2 Because payment history has the biggest influence on credit ratings, it is critical to begin improving scores by paying bills and having paid-off debts on your report. Bills that are paid on time boost credit scores.

Tip #3 The credit utilization ratio is the second most important factor in your credit report. The relatively simple way to maintain a healthy credit utilization ratio is to pay off your credit card debt in full every month. If you are unable to pay off your credit card debt in full each month, try to keep your outstanding balance at less than 30%.

Tip #4 Did you know that the older your average credit age is, the more appealing you appear to lenders? As a result, it is strongly advised to keep old accounts open and try to resolve your collection accounts or charge-offs. However, also remember that paying off collections or charge-offs may result in a minor score boost.

Tip #5 Take out a debt consolidation loan so that you only have one debt to worry about. If you can get a loan with a lower interest rate, you’ll be able to pay off your debt faster, which will undoubtedly improve your credit scores. 

Tip #6 If your friends or family members have a good credit history and a credit card account with a high credit limit, ask them to become their account’s authorized user. This is added to your report and helps you get higher ratings once you’ve been added and the credit account reports to the bureaus.

The Main Point!

If you took all of the necessary steps to improve or build your credit history, don’t expect results overnight. Remember that improving your credit score is a time-consuming and labor-intensive process. Gather your patience, as this process can take months. Credit bureaus look for responsible behavior. Don’t give up too quickly, and you will reach your objective. 

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