If you ever plan on making a big purchase, such as buying a house or a car, you’re going to need a good credit score (ideally above 670). Not only will a good score increase your chances of getting approved for a loan, but it will also help you obtain lower interest rates. Despite the benefits of maintaining a good credit score, approximately 26 million Americans are credit invisible and have no way of proving their reliability. Fortunately, there are a few things you can do to boost your score.
Establish Relationships With Credit Bureaus
The first step to proving your reliability to borrowers is having credit accounts, using them and making timely payments. There are three major credit bureaus in the U.S. that lenders report to: Experian, Equifax and TransUnion. Each one uses its own reporting methods to give you a FICO (Fair Isaac Corporation) score. To get the best loan option, you should receive credit scores from all three. People with low credit scores may benefit from opening one of the following accounts:
- Credit-builder loan: Borrowed money is secured in a bank account, allowing users to build credit while making payments.
- Secured credit card: The card issuer receives a cash deposit in case users cannot make their payments.
- No annual fee card: The card issuer does not require the user to pay any annual fees in exchange for the card.
Alternatively, you may want to consider becoming an authorized user on someone else’s credit card. Provided that the primary cardholder is responsible with their payments, this method can greatly boost your credit. Statistics show that nearly 50% of authorized users have a credit score of 680 or higher.
Work On Your Credit Utilization Ratio
Your credit utilization ratio is the amount of credit you’re using or how much you owe divided by the amount of credit you have available. The lower your credit utilization ratio, the better your score. As a general rule, your credit utilization ratio should not go above 30%. If you want to have an excellent credit score above 800, you should avoid going over 10%.
The best way to keep this ratio low is to pay your full credit card balance each month. Of course, this isn’t always possible. You can try to increase your credit utilization ratio by requesting a higher limit, giving you more leeway in the amount of credit you can safely use. Along with paying as much of your balance as possible, you should strive to make every payment on time. According to FICO, payment history accounts for 35% of your overall credit score.
Consult An Expert
Managing your credit score and evaluating loan options is difficult for anyone, even the financially savvy. If you find yourself struggling to build your credit score or negotiate with lenders, you may want to consider contacting an expert for assistance.
Our team at Assessment Option is ready to help you navigate the complex world of money management. Whether you’re looking to buy your first home or take out student loans, we have the knowledge and skills to help you make the best decision for your financial health. Contact us today to learn more!