How to Improve Your Credit Score: 5 Pro Tips

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( — May 19, 2020) —

Five Valuable Tips to Improve Your Credit Score

People in different parts of the world handle finances in different ways, but if you live in the USA your credit score will be one of the most important measures of your financial health. The credit score tells potential lenders how responsible you are with your loans and in turn they can be more or less likely to provide you with new credit. 

For this reason, it is critical to keep your credit score healthy and growing as much as possible. However, most people don’t really understand everything that goes into the credit score and how to balance it all out. This is why we bring you our top five tips on how you can grow your credit score with some simple decisions and easy to make adjustments to your current habits. 

  1. Understand How the Credit Score Works

Before you can actually change your credit score in an educated way, you need to understand how it works. To many people the credit score appears to be moving up and down arbitrarily, but as you may imagine, there is a method and a formula involved in the actual process. 

The vast majority of lenders in the USA use the FICO credit score and there are five elements that make it up. These are:

  • Payment History (35%)
  • Use of Available Credit (30%)
  • Credit Accounts Age (15%)
  • Credit Mix (10%)
  • New Credits (10%)

Based on this formula, you can see that the most important things to keep track of are your payment history and how much of the available credit you are actually using. This makes it critical to always be on time with your payments and not accidentally let your bills run late. Additionally, you want to keep a good track of how much of your available credit you are using, which brings us to point number 2. 

  1. Watch Your Credit Usage

Credit utilization is one of the main parts of your credit score and it is very important to not overextend yourself in this sense. The way this works is that the number will be calculated based on the percentage of all your available credit that you are actually using at any given time. 

As you would expect, the more you are using, the worse it impacts your credit score and the other way around. Ideally, you want to keep your credit utilization at just under 30%. This way, you are still using credit and the creditors will see this, but you are clearly not overextending yourself or taking more than you can actually afford to be paying back. 

  1. Watch How You Spend

While creditors don’t really care what you buy with the money you borrow, it is important to understand how different things may end up costing you more than you planned in the first place. Business loans can be in this category, but so can more trivial things such as gambling. 

In the past, you would only need to be careful which cards you bring on your Las Vegas vacation but now that gambling operators like Virgin Online Casino are available with just a few clicks of the mouse, things are becoming a bit more complicated. 

If you do decide to let off some steam and enjoy some real money fun online, make sure to set yourself reasonable limits and don’t use your credit cards too much for these purposes, as it may reflect poorly on your credit score. 

  1. Limit Your Hard Credit Inquiries

In banking, there are two forms of a credit inquiry, and these are soft and hard inquiries. A soft inquiry may be something like letting your employer check your credit for purposes of vetting you for a new position. A hard inquiry, on the other hand, only happens when you actually look into getting a new loan, credit card or mortgage. 

This is not to say that simply requesting a new credit card once in a while will ruin your credit score, but you should be careful about how often you do it. The best thing to do is not request too many different credits in a short period of time as this impacts the 10% new credits portion of your FICO credit score. 

  1. Keep Your Old Accounts

It may seem silly to keep old credit and bank accounts you are not using anymore around, but it is actually a good idea if you are going for a strong credit score. Old accounts add to your credit accounts age portion of the credit score and thus improve it if they remain open. 

In some cases, you may have to pay small fees to keep some accounts open, but if you are trying to build a strong credit score, paying some of these is a good idea that could pay dividends in the future. The choice is always yours, but keeping your oldest bank accounts open will certainly help your score.