As you may know, good credit is important for a number of reasons. Not only does it show that we are managing our money properly, but a good score can bring multiple benefits. These range from assistance with renting an apartment or applying for a credit card to buying a mobile phone without paying upfront or leaving a deposit.
Conversely, bad credit can have far-reaching negative effects — not just on your financial health, but also on your ability to shop, get a lease, and maybe even get the job you really want.
If you’re concerned that your credit score isn’t good enough, the good news is that you don’t need to despair. Read on for some helpful tips on how to improve your score so you can enjoy all the benefits that come with good credit.
What is good credit?
First things first – if you’re not sure what constitutes a good credit score, according to FICO’s credit scoring model, your number should be between 670 and 739 to be considered “good.” The highest achievable score is 850.
As of 2021, the average American credit score had risen to 714 and 71% of Americans had a credit score of 670 or higher.
What if your credit score suddenly drops?
Unfortunately, credit ratings can fluctuate, sometimes without apparent reason. Usually these are nothing to worry about, but sometimes the drop can be significant.
For example, while you usually have good credit, you may find that it’s suddenly yours Credit score dropped 100 points. This sudden drop can be very unsettling, and you may not always be able to imagine a possible reason for the drop. However, it is important that you pinpoint the reasons for this to avoid it happening again, as a 100 point drop is significant.
Possible reasons for such a significant decrease could be: late or missed payments; a credit utilization rate of 100% (in other words “depleted”); or a collection account. This is when an unpaid bill, debt or subscription suddenly appears on your credit report and needs immediate attention; Or better yet, avoid it altogether.
How to increase your score:
Whether your score is great, good, or just semi-decent, you may want to find ways to improve it. Here are some simple but very effective ways to boost your score over time.
- Don’t miss out on loan repayments
Your payment history is one of the most important things lenders check before agreeing to lend you money. Therefore, it is important that you try not to miss any payments.
To help you, you can set up automatic payments from your bank account or, alternatively, set up reminders on your phone to make sure you don’t miss a bill.
- Don’t apply for too many credit products
make too many “hard requests” in your credit history – i.e. by applying for a new loan, e.g. B. a credit card or a loan – can negatively affect your credit score. These effects can potentially last for months or even up to two years, affecting your ability to borrow money when you really need it. Therefore, it is important that you try to spread out your applications for new loans as widely as possible. One or two “hard requests” won’t make much of a difference, but several in a short amount of time could give the wrong impression.
In this case, the 30% relates to your credit utilization – how much of your available balance you are using at any point in time. This is the second most important factor lenders will consider when making an application, so try to use 30% at most.
If you can limit your credit utilization to 10% or even less, all the better – but if that’s not a realistic option for you, you need to focus on 30%.
- Fix your “defaulting” accounts
If you have a delinquent account, ie an old account with some outstanding payments, then it is important that you fix this if you are to improve your creditworthiness. This unpaid debt will show up on your credit report and could make you a bad prospect for lenders.
- Challenge unfair omissions or mistakes
It’s a good idea to check your credit reports from time to time so you can monitor your creditworthiness. If you experience sudden deterioration, it could be due to an error or an unfair default. If so, you should report it. Inform them credit bureau that sent you the report and the company that made the mistake or caused the unfair default and provide evidence that there was a mistake.
As you can see, having an above-average credit score isn’t the end of the world. There are a number of steps you can take to solve problems and improve your score. It’s never too late to aim for a very good credit rating.