How to improve your credit score

How to improve your credit score

 

Our lives revolve around our credit score. With the prices of cars, TVs, and even furniture rising you have to finance these items so you don’t spend all of your cash in one place. When it comes to financing, the better credit score you have the better interest rates and terms you will be offered. Improving your credit score is not as hard as you may think.

Here are a few steps that will get you started down the path to great credit!

  1. Set a goal!

Knowing your current credit score is the very first place to start when looking to improve. Most large banks or credit card companies offer you a weekly or monthly FICO score update. FICO is more accurate when compared to services like Credit Karma. Once you know your current score you can begin setting a goal.

What credit score would you like to have in 6 months? 12 months? Why do you need that credit score? How will you get there?

These are all questions you should ask yourself when setting a goal. You may need to reach out to the lender you are trying to get approved for to see if they can provide the guidelines that they look at.

  1. Use different types of credit!

Not all credit is treated the same when looked at by lenders. Lenders like to see when you are trustworthy with the credit they give you. Paying off all of your credit debt and never using it again is one of the top areas of concern for lenders. It tells them that you are afraid of credit and letting it get out of control. It says that you don’t know how to manage your finances.

With that said, don’t be afraid to take out small loans for big purchases. Even if you have the money upfront it will only help your score increase. Just remember to budget according to your income! Good budgeting will make sure you can live your life to the fullest!

  1. The 30% rule!

The 30% rule simply means that you should keep your credit card utilization more than 0% and less than 30%. Dropping your total balances to less than 30% is one of the quickest ways to see a jump in your score.

While most reports show a percentage for overall utilization, some reports can knock off a few points if individual cards are reporting much higher than 30%. A good habit to get into is making sure all of your cards stay below 30% utilization.

Just like in tip number two, it’s never a good idea to completely pay off a credit card and never use it again. This doesn’t mean that you have to use all of your cards all the time, but you should show a balance on a couple of them. Then you can pay off the rest every month.

  1. How many credit accounts should you have?

Along with using different types of credit, you should pay attention to your age of credit. The longer average age of credit you have the better. Each time you add a new account to your credit history, then your age gets recalculated. This especially can hurt you if you have more than 5 credit accounts because once you gain an account it can take up to two years for you to see a noticeable increase in your credit score.

Only apply for new credit accounts if you absolutely have to. Maintaining a greater average age of credit is a long-term strategy, but can offer a big reward to your credit score.

 

In conclusion, your credit is based off on many factors. Some factors will hurt you more than others, but knowing how the system works and being able to stick to a good budget can help you lower your debt and increase your credit score.

In property management, your credit score has an effect on how much you may owe at the time of move in. You can take a look at our credit requirements on this page to see how you will be affected by your current score. If you’re looking to move within the next six months, then setting a goal to increase your score can definitely save your money!

If you want to learn more about real estate financials, then head on over to BiggerPockets. Some of the information in this article comes from an article by BiggerPockets.

Disclaimer: The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.  It is only intended to provide education about the financial industry.  The views reflected in the commentary are subject to change at any time without notice.