Lenders commonly use a credit score to determine your ability to repay any loan. Lower scores can lead to denial of a loan, or you can be charged high-interest rates.
Before you apply for a new loan, make sure you have a good credit score. There are different measures you can take to enhance your score. Here are 6 things you can do to improve your overall credit score.
1. Pay Your Debts on Time
Late debt payment is something that can drastically impact your credit score. If you make late payments, then your credit score can sink under your watch. It is important to pay all your bills on time and try to catch up if you are behind on your payments. It is a good idea to talk to your lender if you cannot make an early payment due to different factors. You can also consider the strategy of paying as much money as possible to reduce your debts.
2. Look for Errors in Your Credit Report
You should review your credit report to check for errors. Each individual is entitled to get at least one free report from each of the 3 major reporting agencies, which does not impact your credit score. You can do this by enlisting the services of companies that help repair credit to check your report. They can dispute the errors found in your report. Other mistakes can be costly such as debts listed twice or account with incorrect balances. Correcting wrong information can significantly improve your credit score.
3. Prevent Identity Theft and Fraud
Credit monitoring helps you check the changes in your credit score over time. You can try using a credit monitoring service to monitor your credit report for aspects like paid-off accounts and new accounts you have opened. Credit monitoring services will provide you with one of your credit scores from one of the major credit bureaus, including Experian, Equifax, and TransUnion. Professional credit monitoring companies can also help prevent issues like identity theft and fraud. Unscrupulous people can steal your identity and open several accounts, leading to money loss and poor credit score.
4. Use a Debt Consolidation Plan
If you have several outstanding debts, it can be a good idea to get a debt consolidation loan from a credit union or bank to pay them up. When you consolidate your debts, you will remain with one loan to deal with, and this can also lower your interest rate. This will help you pay your debt faster and improve your credit score. While the difference caused by debt consolidation might be slight, it significantly improves your score.
5. Limit Requests for Credit Inquiries
You must limit credit inquiries on your credit report to maintain a good credit score. A soft inquiry is when you check your credit or allow a potential employer to check your credit. Credit checks by financial institutions don’t have a negative effect on your business. Hard inquiries are able to have an adverse effect on your score from a number of months up to nearly 2 years.
Hard inquiries are inclusive of an application for an auto loan, a mortgage, a new credit card, or any kind of loan. The lenders will make hard inquiries on your credit report, which can stay on your credit history for two years. You should not apply for a loan for a certain period to improve your score. Removing the hard inquiries from your report can also boost your score.
6. Keep Old Accounts Open
If you have an old account, you should not close it when you have paid down your debt. You should not close other accounts connected to the old account since you can use it to your advantage. When you keep old accounts open, it will appear like you are not using much credit. This will help increase your credit score by bringing your credit utilization down. You will appear as a responsible borrower if the lenders see all the paid-up accounts and lower credit utilization.
If you are planning to apply for a loan to buy a big asset like a house or a home, you must have a good credit score. Lenders generally look at your score to approve or reject your loan application. Your credit score also determines the interest you can be charged for your loan. Therefore, improving your credit score to enjoy better results is a good idea. These tips can go a long way in helping you improve your credit score.