Your credit history has a substantial impact on your financial options, and thus, on your quality of life. Good credit scores mean higher chances of approval on things like mortgages, auto loans, and credit cards. With a good score, you’ll also receive better offers with lower interest rates than someone with a low score, saving you potentially thousands of dollars.
If you’re ready to get your credit into shape this year, here are a few places to focus your effort.
Understanding how your credit score works
The first step to getting your credit in tip-top shape is understanding how your credit score is calculated and what factors are weighted the most. There are two ways for scoring your credit, and each reporting bureau (Experian, Equifax, and TransUnion) uses either the FICO Score or VantageScore method. Overall, they’re relatively the same but do have a few minor differences, so knowing your fico score versus credit score can help determine which factors you should pay the most attention to.
How to improve your credit score quickly
One of the best ways to ensure your credit is in good shape is by regularly checking your credit report. You can get a free copy of your credit report every year from each of the three major credit reporting bureaus. This will give you a good idea of where you stand and what you need to work on.
Once you have the complete picture of where you stand, you can do a few things to help boost your credit score a few points, even as early as the next month.
One is to make sure you have a good mix of credit accounts. You should have both installment loans and revolving credit accounts, like credit cards. Another thing you can do is keep your balances low on your credit cards as creditors want to see you’re responsible with the credit you have. Having too high a balance makes it seem like you’re prone to overspending and have difficulty paying back your debts. This can make lenders wary of letting you borrow money. Try not to spend more than 30 percent of your available credit limit to avoid this.
Also, make sure you’re paying your bills on time. Late payments are the most heavily weighted factor for both FICO and VantageScores, so make it a priority to always have at least the minimum payment made on time every month. Lastly, if you find any errors in your report, be sure to dispute them as soon as possible so any incorrect information is removed from your report quickly.
The bottom line
Any improvement made to your credit score can go a long way toward saving you money and increasing the likelihood you’ll be approved for milestone moments like getting a mortgage for your first house or having the lowest interest rate on a new car loan. Even minor changes now can have a significant impact on your score tomorrow. Start by checking your credit report to see where you need to improve and take things one step at a time.