• Category
  • >Financial Analytics

5 Ways to Improve Credit Score

  • Kanan Arora
  • Aug 30, 2021
5 Ways to Improve Credit Score title banner

What is a credit score?

 

A credit score is a number that depicts a consumer’s creditworthiness. It is the most important measure of a person’s financial health and is therefore, a widely used indicator worldwide.

 

Essentially, the better a person’s credit score is, the easier it is for him/her to get credit from various financial institutions. It also determines the interest rate available at the time of borrowing. Therefore, maintaining a healthy credit score really eases the path to financial freedom for an individual.

 

With an attempt to improve one’s credit score, this blog discusses simple yet effective methods of doing so.

 

(Must catch: What is credit rating?)

 

 

Credit Bureaus and Credit Rating Models:

 

It is generally assumed that there is just one standard credit score applicable, but this is usually not the case. Different countries have different credit scoring models that essentially determine a score to gauge the creditworthiness. Even though the fundamentals governing these credit scores are the same, the relative proportion of these fundamentals and the scale used differentiate one credit score from the other.

 

There are organizations called credit bureaus which are responsible for the compilation of credit reports and credit scores which are eventually used by lenders. In the United States, the three national bureaus of national significance include Equifax, Experian and TransUnion.

 

These bureaus use various credit scoring models, of which, the most commonly used and widely accepted is the FICO Score, which was developed by Fair Isaac Corporation in as back as 1956. It however was only made available to consumers in 1989. The FICO score is a three digit number ranging from 300 to 850. Typically, a score in the range of 670 to 739 is considered a good credit score, helping secure loans easily and at suitable interest rates.

 

Another widely used scoring model is the VantageScore, created by the three major credit bureaus in 2006 as an alternative to the FICO Score to better address changes in behavioral trends and advances in data collection. The most current versions of VantageScore have the same range as the FICO Score (300 to 850). 

 

(Read also: Centralized and Decentralized Cryptocurrency Exchanges)

 

Factors determining credit score:

 

Regardless of the credit bureau and the credit rating systems used by these bureaus, there are certain intrinsic factors that determine the credit score of an individual consumer. These factors need to be understood in order to understand the various methods that can be employed to improve one’s credit score.

 

  1. Payment history: This takes into consideration on-time payments.

  2. Amounts owed: This measures how much debt an individual is carrying relative to his/her credit limits.

  3. Length of credit history: This measures the duration for which the individual has been handling credit.

  4. New credit: This measures the frequency of application of new credit.

  5. Credit mix: This measures the ability of a consumer in handling different types of credit including credit cards, loans, etc. 

 

(Related blog: Types of financial risks)

 

 

5 Ways to improve credit score:

 

In order to improve one’s credit rating, one can systematically follow the ways written below which seek to improve upon the factors affecting the credit score listed above and thus, provide a consumer with an edge over other consumers, providing him/her with a better credit experience over a longer period of time.

 

  1. Build a Credit File:

 

The first and the most obvious way of improving a credit score is by creating a timely credit file. It is essential for a consumer to open new accounts accepting credit from various credit lines right from an early age in order to build a reliable credit profile over time.

 

In order to lay down a good track record as a borrower in the future, it is required to open accounts in one’s name in the present and this is the first step towards building a good credit score as well.

 

Once an account is opened with a lending institution, they report the same to all the major credit bureaus.

 

(Suggested reading: Types of trading)

 

 

  1. Make Timely Payments:

 

Being disciplined and punctual with repayment of outstanding debt is one of the most important methods of steadily improving credit rating and maintaining a good credit rating score.

 

As can be understood intuitively, a lending institution would like it's payments to be done timely in order to maintain a healthy balance sheet from time to time. No institution wants any delays in its payments since it loses out on the time value of money or the value generated by the money had it been returned timely.

 

Due to the inconveniences caused to the lending institution due to delays in payments, the borrower delaying payment suffers monetary penalties along with a downgrade of credit rating with time.

 

An individual looking for a decent credit score needs to put in measures in place to remind him/her of making timely EMI payments and form a habit of doing so. These measures can include notification systems or automatic payment systems. 

 

Usually payments that are at least 30 days late can be reported to the credit bureaus and can end up hurting a consumer’s credit scores.

 

 

  1. Keep Track and Catch Up on Past-Due Accounts: 

 

Another seemingly obvious yet effective method of reaching a good credit score is to keep punctual checks on the past-due accounts, these could include past credit cards or loans including house loans or vehicle loans, etc.

 

While a late payment can remain on a person’s credit profile for as long as seven years, it accrues up late payment charges over time and puts a dent on the credit history and corresponding the credit score of the individual as well.

 

So, if for some reason, payments have been delayed, the reason should be conveyed to the lending institution at the earliest and the combined payment Including the initial amount and the late fee should be gotten rid of as soon as possible.

 

Additionally, a punctual analysis of old credit cards should be done and only if the bills can not be paid anymore should the card be discontinued, after settling the remaining dues. It is a general practice of people to switch between credit cards and then discard the previous ones. While this might seem enticing in the short term, it has a detrimental effect on the credit rating over a longer period and therefore, a detrimental effect on the long term financial goals of an individual.

 

(Must read: Basic principles of trading)

 

 

  1. Customize Credit Limit:

 

A consumer’s credit utilization rate or credit utilization ratio is the amount of revolving credit being currently used to the total amount of revolving credit available to the consumer.

 

The credit utilization rate has a significant impact on a person’s credit score. In general, the lower the credit utilization ratio, the better the credit score. 

 

Utilizing the credit to the fullest has a negative impact on the credit score since it fails to provide the lending institution a buffer and increases the amount of loss if the borrower defaults in his/ her payments. 

 

A good practice is to customize credit limits based on expenses after discussing with the lender. 

 

 

  1. Limit applying for new accounts and taking too much debt at a time:

 

The amount of accounts opened in a particular period of time and the number of loans taken in a fixed period of time should be kept to a minimum to improve credit score.

 

An individual should repay one loan and then take another if keeping a good credit score is a priority for that individual. This is primarily because if a person takes multiple loans at once, it becomes evident that the person is in an unforgiving cycle of insufficient funds, hinting at the continual of the behaviour in the future as well. As a result, his/her credit score may fall.

 

Also, each loan application leads to inquiry and a coupling of several inquiries can have a negative compounding effect on credit scores. The inquiry aspect is often overlooked when constantly applying for loans. 

 

(Recommended blog: Commonly used technical indicators)

 

 

The Bottom Line

 

This blog discusses the 5 key ways to improve an individual’s credit rating. Almost all of the 5 methods discussed are intuitive in nature and do not need any sort of deep financial understanding to understand.

 

The key aspect however remains in the implementation part of the methods. Reaching to and more importantly maintaining a decent credit score is a slow and steady process. It does not happen overnight and therefore, the sooner the journey begins, the better it is.

 

The journey of improving the credit scores involves more of a consistent approach rather than a smart one and therefore, can easily be adopted by anyone.

 

(Also read: Option trading strategies for beginners)

 

It needs to be understood that lending institutions need creditworthy borrowers as much as borrowers need trustworthy lending institutions for their financial requirements. The process is therefore both ways and sometimes takes longer than expected but success is guaranteed with small steps and consistent efforts.

Latest Comments

  • mariacorner4205e866a3704a44f63

    Aug 17, 2024

    How to Hire the Best Crypto Recovery Expert — CONSULT GHOST MYSTERY RECOVERY HACKER Investors are becoming increasingly concerned about the possibility of losing money in the ever-changing world of cryptocurrencies due to a variety of issues like hacking, frauds, or basic human mistake. Selecting a trustworthy and knowledgeable crypto recovery specialist becomes crucial in such risky circumstances. GHOST MYSTERY RECOVERY HACKER is a well-known American company that stands out for its proficiency, impressive client success rate, and positive customer feedback. How can I recover my stolen bitcoin from an investment scam? What is the best recovery company to help me recover my stolen Bitcoins? How to Hire a Hacker to Recover Stolen Crypto/Bitcoin? Can a hacked crypto be recovered? Yes, Go to GHOST MYSTERY RECOVERY HACKER Best Cryptocurrency Recovery Company info: Email address.... ( ghostmysteryrecoveryhacker@seznam.cz ) WhatsApp: +1 (940) 354-3143 Telegram ....... http://t.me/Ghostmysteryrecoveryhacker

  • lucyowen2497ccfffc89d2241f7

    Aug 20, 2024

    Was at 720 across the board with 15% util. life took a hit. Used CCs to make it through 90%+ util. FICO down to low 600’s. I couldn’t pay off bills. after several months. I came across PINNACLE CREDIT SPECIALIST and their wonders on Quora. I immediately contacted him and explained about my predicament, he promised to get me an exceptional credit profile which he did. He demanded for some of my information which I gave him, after 6 days, he got my credit fixed and updated all my debt as paid. CRB updated to paid. My scores jumped up 200 pts to 800’ish. Nice. Will be a car shopping after. Smiles. I finally reached the 800 club after several years digging out of the mess I was in. partially my own fault, partially health related, still me of course. You can contact PINNACLE CREDIT SPECIALIST for any kind of credit repair, Chex system and DUI fix. Email: PINNACLECREDITSPECIALIST@GMAIL.COM Or Text +1 (409) 231-0041.

  • christophermkennedy172462bae2dff8e4776

    Aug 31, 2024

    I had to contact SAFEPORT CREDIT SPECIALIST few days ago through their email: SAFEPORTCREDITSPECIALIST@GMAIL.COM and surprisingly they are carrying out an actual credit fix, all negatives/inquiries deleted! I took advantage of this and you too can. I’m quite sure you will be happy you did fix your credit report now. Some months ago, Equifax  one of the country’s three major credit reporting bureaus alongside Experian and TransUnion revealed that its security apparatus has been breached by a credit hacker known as SAFEPORT CREDIT SPECIALIST he obtained private financial information the company held on over 140 million Americans. Offering paid service to helping customers increase their credit score over the deep web and getting negatives as well as hard inquiries deleted.

  • michaelsmclaughlin2579197c1752694b0b

    Sep 06, 2024

    I was severally denied of loan because I had an Eviction and criminal judgement on my credit report that has been on my report for about 3 years and I was turned down several times trying to get an apartment of my own; I also lost several job opportunities so I told my friend who immediately introduced me to SAFEPORT CREDIT SPECIALIST. He testified how SAFEPORT have helped several people on their credit issues so I called them and they responded immediately. I reached an agreement with them. Within 24 hours he wiped the eviction off my report, three days later the criminal judgement was erased including late payments were all marked as paid on time. SAFEPORT raised my score to 801 Equifax, 808 TransUnion and 813 Experian. I’m so excited for what he did for me on my report I now own an apartment with good credit profile. If you need help in fixing your credit, I will sincerely recommend them via: SAFEPORTCREDITSPECIALIST@GMAIL.COM and get all yours fixed ASAP.

  • ashleygeary5c68b4032d6584a31

    Sep 07, 2024

    Hello all! I am new here. I am 21 years old just got out of college and am making 61K a year. I do not start paying on student loans until March of next year I wanted to try and get ahead of my credit before then. I had mortgage that is $500 a month. I kept up with that no problem. However, I had over $17000 in debt on multiple credit cards (15-20). I know it was a very bad idea. I missed a few payments as of then due to an emergency and it really hit my credit. I was sitting in the high 400s. I have always looked for a way to fix up my credit. I got my credit issues resolved through PINNACLE CREDIT SPECIALIST. He is the only legit hacker that lives up to the hype. After 9 days I contacted PINNACLE CREDIT SPECISLIST, he increased my scores to 800+ across the three-credit board. He also increased my credit profile by deleting all late payments, mortgage, student loan and removed all credit card debts. I sincerely acknowledge their relentless efforts and urge you to contact him for any related issue. Contact info: PINNACLECREDITSPECIALIST@GMAIL.COM OR Call +1 (409) 231-0041.

  • bradadcock250537051aabdb4286

    Sep 07, 2024

    I’m Brad Adcock I was denied several times on getting a loan or an apartment basically because of late payments and some passed financial difficulties, which gave me a low credit score. I was on my phone then came across some testimonials on how SAFEPORT CREDIT SPECIALIST turn low credit score to high credit score, immediately I contact the company I got replied immediately and within some hours we came to an agreement. He cleared my bad report within hours after the agreement was made; He increased my credit score to 708. I was so happy now my financial bill has been cleared, I have gotten the loan I now have an apartment of my own and I’m doing fine. If you have a low credit score you can contact them via this email: SAFEPORTCREDITSPECIALIST@GMAIL.COM

  • leepatton503ee5763f506a34b9e

    Sep 13, 2024

    After years of not caring about my credit and being reckless. I needed to clean and completely rebuild my credit. I was hit with big life changes, and I wanted to build my financial situation so I can provide stability for myself and family. I ultimately want to buy a house. I felt a lot of shame for my past and not having much thought for my future, but I know it's a good time to change that. So, my credit scores were TransUnion 599, Experian 562 and Equifax 648. I had 8 collections accounts. These were my biggest concerns. 5 of them were opened between 2018-2019. My plan was to pay others as they were opened 2021-2022. I do have a personal loan. I pulled out 2021 and I owed 4188 with high interest, which I immensely regret. My total credit card debt is about $600. I was on a credit repair forum on Quora when a lady wrote about PINNACLE CREDIT SPECIALIST how they cleared her debt and increased her credit scores. I never believed what she said, but I decided to give them a try. I quickly contacted them for credit repair assistance which I got a response immediately. They cleared all my negative accounts on my report and increased my scores to TransUnion 805, Experian 807 and Equifax 804 excellent scores, they also added positive tradeline to help boost my scores. All this happened within 9 days. My heart is full of gratitude. You can reach them by email: PINNACLECREDITSPECIALIST@GMAIL.COM OR CALL +1 (409) 231-0041.

  • sharifghazal60bf061d448454054

    Sep 21, 2024

    I worked my ass off to get my credit score up to 700. Then some people stole my identity and all my money. It ruined my life. I’m a single girl and I wanted to buy a house one day. I have to confide in my pastor in church who then recommended SAFEPORT CREDIT SPECIALIST showing proofs of some other persons SAFEPORT CREDIT SPECIALIST came through for. I didn’t hesitate to contact them and I’m glad I did because SAFEPORT returned my credit score to 802 and wiped out all the negative items and hard inquiries from my report. They also assisted my parents to fix their credit report. Quickly use their email to hit them up: SAFEPORTCREDITSPECIALIST@GMAIL.COM

  • anthonyfalcone23760e911bc12047ab

    Oct 01, 2024

    I was wondering how possible it is to raise my credit score from 500 to 800. I’ve been looking for some ways to improve my credit score after some financial difficulties. I had 11 late payments reported from Bridgecrest during the pandemic when I was laid off and dealing with some health issues. Unfortunately, I fell behind on my payment during that time, until I came across a PINNACLE CREDIT SPECIALIST who cleaned all the mess on my credit report, marking all late payment as paid on time. I’m a lot happier now because my scores moved from 526 to 801 across the board. Thanks to PINNACLE CREDIT SPECIALIST. Here is the contact to reach out to them: PINNACLECREDITSPECIALIST@GMAIL.COM Or +1 (409) 231-0041.

  • nataliawilson957526b49004cbd4dfc

    Oct 04, 2024

    I want to share my incredible experience with Pinnacle Credit Specialist. My credit life was poor for years, but after reaching out to them through a credit forum, everything changed. They helped me fix my credit profile and raised my scores to an excellent 801 on TransUnion, 809 on Equifax, and 802 on Experian! They deleted charge-offs from my report and marked all my credit card debt as paid. After years of hard work, I’m down to just a few charged-off accounts, and I’m grateful for the support I received. If you're struggling with your credit, I highly recommend Pinnacle Credit Specialist for their expertise and dedication to helping clients like me achieve financial freedom. Email: pinnaclecreditspecialist@gmail.com Or call +1 (409) 231-0041.