Ways How To Improve Your Credit Score – Follow These Tips To Better Credit

Ways How To Improve Your Credit Score

Ways How To Improve Your Credit Score

Just as it is important to understand and periodically review your credit report, it is necessary to know your score. This powerful three-digit number is calculated based on the financial information found in your credit history. It’s what creditors use to determine if you are an acceptable candidate for a loan, credit card, mortgage, or employment. This article takes a closer look at scores with ways how to improve your credit score and manage it effectively.

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Managing Your Credit Score

One of the best things you can do to maintain a strong financial position is to manage your credit. To maintain a good credit score, start with checking your spending, especially as it relates to your credit card accounts. Make sure you understand how much you earn each month and how much you have available to spend on credit. Most of all, do everything you can to stay within a healthy range. You can get into trouble quickly with overspending.  Simply staying within budget while trying to repair your credit is much more difficult after the damage.

In addition to watching your spending, strong organization skills as they relate to managing your payments also come into play. Knowing amounts and when payments are due is important to maintaining a strong credit score. One way to manage your bills is through automatic payments.  Regular scheduled withdrawals made directly from your checking each month, make it easy to stay on-time. If something happens that cause you to be late on a payment, contact your creditors before the due date arrives. If you are proactive, they may work with you – and keep negative marks off your credit report.

The Credit Score Formula

Working to manage your credit within your means is an important part of maintaining a strong credit score. In addition, understanding the calculation of the credit score is equally important. Per My FICO, the leader in providing credit scores to lenders, the calculation is based on the following elements:

  • Total amounts owed –30%
  • New credit obtained – 10%
  • Length of credit history – 15%
  • Payment history – 35%
  • Credit mix (types of accounts) – 10%

tablet credit score analysis

Additional ways how to improve your credit score is critical in each of these categories. A significant portion of the calculation is based on payment history, however it is not the only part of it.  To achieve – and sustain – a high credit score, you must work toward maintaining a good credit history.    In addition, finding a balance between new and established credit, account mix, and usage help to maintain a solid score.

Simulating Changes In Your Credit Score

Other ways how to improve your credit score is to look ahead with the FICO credit score simulator tool.  This service is provided at no cost to you through Fair Isaac. The simulator allows you to input your current financial picture, including the number of credit accounts you have.  In addition, any delinquencies, the percentage of available credit you’re currently using, and total amounts due across all accounts. Based on this initial data, the FICO simulator provides a range where your credit score most likely falls.

A recent enhancement to the score simulator provides insight into the impact credit habits changes might have on your score.  For instance, you can see what paying down a credit card or maxing out limits would do to your score. Forgetting to pay a bill, a new loan, or increasing your credit limit are what-if scenarios available through the simulator. If you expect a change with credit usage, the simulator provides direction on the effect to your credit score.

Improving your Score

If you’ve made mistakes and are trying to improve your score, there are steps you can take to get better.  Because payment history makes up the largest part of the credit score calculation, it makes sense to start there. First, aim to bring any delinquent accounts to a current status. Pay past due amounts, and set up a system to be on-time going forward. This may require setting up automatic payments and reminders ahead of the due date.

Decreasing the amounts you owe will also help, as this contributes to 30% of your credit score. Keeping balances low on credit card accounts is important, as it shows you manage credit limits in a responsible way. Instead of shuffling your debt from one card to the next, work toward paying it down fully. Also, keep your revolving accounts open, even if you aren’t consistently using them.  In addition, try to avoid opening new accounts simply to boost your score.

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Other ways how to improve your credit score is to look after the type of credit you use. Especially if you only have student debt or a car loan, think about adding a credit card to diversify accounts. As with most credit accounts, spend within your means and pay down balances as soon as you’re able.

Managing your credit score does not have to be a full-time job, but it does require some work to maintain. Boost your understanding of the credit score calculation, and pay close attention to how you utilize the credit. These steps will have a positive impact and improve the perception lenders have of how you manage your financial affairs.

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8 Comments

  1. Thank you for writing up this content.

    I stopped by your site looking for some information on improving my credit score and found this very useful. In the past my credit score has always been in the green, but over the last couple of years I struggled a bit by moving jobs and being without income for a short period which has now damaged my credit score for the first time.

    Thanks to the information I found here on your site I know now how I can get myself back in the green again.

    Thank you so much this was a great help !!!

    • Thank you for the positive comments about the content. Everyone one needs a little guidance when it comes to their credit score and financial affairs. There are so many things that can impact your credit score that people are not fully aware of. I am happy to hear it was helpful.

  2. Thanks for the great info, Patrick.

    All the points you mention are vital on how to improve your credit score to achieve better credit.

    The bottom line is that lenders want to be confident that we can honor our financial commitments. A credit score is a financial report card that tells lenders if we are a good credit risk or not.

    I really like the link to the free Credit Score Estimator by myFico. I will definitely be referring to this great tool on a regular basis.

    • Warren,

      Thanks for commenting.  Really glad you enjoyed the post and can use the info.

      You’re right, lenders want to know your a good credit risk, so maintaining a good credit score is essential to getting approved and receiving the best rates.

      The myFico tool is a really nice extra to have when monitoring your credit score.

      I’d also recommend using some of the sites out there that offer free credit scores and definitely order a free credit report once a year from one of the credit agencies.

      This will help ensure there are no errors or fraudulent activity on your credit report.

      There’s lots of information on the site that will help you accomplish these things. Just click on the Credit Scores menu item for further information.

      All the best,

      Creditsquared

  3. I enjoyed reading your tips here. I find setting up automatic payments on my credit card and utilities work the best for me because then I’m always on time. Years ago, I would attempt to gather my bills and end up being late and of course ended up with interest and late payment charges. Now everything gets paid with no accumulating balances. I’m going to bookmark this for my future references and also let my kids know too.

    Thanks!

    • Hi Monica – Setting up automatic payments is a very good idea.  The object of the game is to get your bills paid on time every time.  If you accomplish that no matter how it gets done, then it should result in a great credit score. 

      We all have hectic schedules, especially busy Mom’s.  Things can get overlooked, so setting up ACH payments can be a smart solution to a pressing problem.  On time bill payments with no prior period balances.  

      Glad to here things are under control. And thanks for bookmarking the site and sharing with your kids.

      Patrick

      Creditsquared  

  4. Ugh, the dreaded credit score. However, it is a necessary evil to survive in this credit score-obsessed world. I had to learn the hard way :(. Now I’m on a much more healthy path to obtaining the credit score I’ve always wanted. For me, my credit score really started to improve when I got a credit card and paid on time. I was never late and wow, it did wonders for my credit score! Living within my means and knowing my limits and how much I should charge and it not backfiring on me when payment time came around was also key. Great article! I hope to hear more from you on improving finances!

    • Hi Wendi – Thanks for commenting.  I’m pleased you enjoyed the article.  

      Based on your comments it sounds like you have got things under control now.  By the way, most people learn the hard way.

      There is just not a great deal of information out there about improving your credit score, particularly when it comes to people just starting out.

      Once you know how the game is played and you follow the game rules you end up in the right place.

      Amounts owed 30% and payment history 35% are the highest weighted factors used that make up your credit score.  Consumers trying to improve their score should primarily focus their efforts on those two.  Doing just that will lead to better credit.

      Patrick

      Credit Squared    

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