(TNS)—The journey to improving your credit score is a marathon, not a sprint.
An excellent score can help you qualify for low-interest loans and premium rewards credit cards, but the process takes time. You can get started by checking your credit score to see where you currently stand. Once you have an idea of how much room you have to grow, use these tips to begin building better credit.
- Stay on top of payments.
Keep your debts in the green to show lenders you’re responsible with credit. According to Experian, payment history is the most influential factor for both FICO and VantageScore, the most common scoring systems. Your credit score is essentially a reflection of your ability to pay back debts effectively. From a lender’s perspective, an established history of timely payments is a good indicator you’ll handle future debts responsibly, too.
“You want to avoid things like late payments, defaults, repossessions, foreclosures and third-party collections,” says John Ulzheimer, credit expert, formerly of FICO and Equifax, “and filing bankruptcy is a horrible idea. Anything that would indicate non-performance of a liability is going to harm your credit score.”
- Keep tabs on your credit utilization rate.
Weigh your balances relative to your credit limit to ensure you’re not using too much available credit, a practice which can indicate risk.
“The higher that ratio, the fewer points you’re going to earn in that category and your scores are absolutely going to suffer,” Ulzheimer says.
Credit utilization is one of the most influential categories that influence your score. Your ideal rate may vary depending on the scoring system used.
“In FICO’s systems, less than 10 percent is the optimal target,” Ulzheimer says. “In fact, people who have the highest average FICO scores have a utilization of 7 percent.”
VantageScore, on the other hand, looks for a target utilization of 30 percent or below.
“I always default to 10 percent because that’s going to keep you in the good zone for both of the scoring platforms,” Ulzheimer says.
The date your revolving credit issuer reports your information to the credit bureaus may also impact your utilization rate. According to Ulzheimer, FICO’s scoring systems don’t differentiate between those who pay in full each month and those who carry a balance; the utilization that appears when your issuer reports your account information is the rate scored. VantageScore, though, does consider whether you pay in full or carry your balance month to month.
If you struggle with high balances and mounting interest payments on your cards, consider consolidating with a zero percent introductory rate balance transfer credit card.
- Leave old debts on your report.
Once you finally get rid of student debt or pay off your auto loan, you may be impatient to get any trace of it wiped from your report—but as long as your payments were timely and complete, those debt records may actually help your credit score. The same is true for you credit card accounts.
“An account that’s paid in full is a good thing; however, closing an account isn’t something that consumers should automatically do in the hopes that it will positively impact their credit score,” says Nancy Bistritz-Balkan, vice president of Communications and Consumer Education at Equifax. “Having an account with a long history and solid track record of paying bills on time, every time, are the types of responsible habits lenders and creditors look for.”
Any bad debts that can impact your score negatively are automatically removed over time.
“Bankruptcies can stay on your report no longer than 10 years,” Ulzheimer says. “Late payments and similar delinquencies like collections, repossessions, foreclosures and settlements, those are capped at seven years.”
- Take advantage of score-boosting programs.
The number and average age of your accounts are both important factors in helping lenders determine how well you handle debt, which can leave those with a limited credit history at a disadvantage.
Experian Boost and UltraFICO are two programs that allow consumers to boost a thin credit profile with other financial information. After opting into Experian Boost, you can connect your online banking data and allow the credit bureau add telecommunications and utility payment history to your report. UltraFICO allows you to give permission for your banking data, like checking and savings accounts, to be considered alongside your report when calculating your score.
- Time your applications carefully.
Every time you apply for a new line of credit, a hard inquiry is pulled on your report. This type of inquiry lowers your score temporarily.
“In general, the effects of a hard inquiry last anywhere from 6-12 months,” a TransUnion representative tells Bankrate, “and that inquiry is only on your credit report for up to 24 months.”
Research your likelihood of approval to ensure you’re a good candidate before applying for a new credit card. You don’t want to risk lowering your score for a denied application. You should also refrain from applying for several credit cards within a short timeframe or before taking out a large loan like a mortgage.
When you shop for a mortgage, auto or personal loan, you can keep hard inquiries to a minimum by making rate comparisons within a short time period. Applications for the same type of loan within a designated timeframe will only appear as a single hard inquiry. According to FICO, this span can vary from 14-45 days.
- Be patient.
You won’t raise your credit score overnight, which is why one of the best ways to achieve an excellent score is to develop good long-term credit habits. According to Ulzheimer, two influential factors that go into your score are the average age of information and the oldest account on your report.
“You’re really going to need to have credit for a couple of decades before you max out those categories,” Ulzheimer says. “It takes a really, really long time to improve a bad score and it takes a really short amount of time to trash a good score.”
Establish good habits, like paying your balances on time, keeping a low utilization rate and applying for credit only when you need it, and you should see those practices reflected in your score over time.
- Monitor your credit.
When you view your own credit, a soft inquiry is pulled, which doesn’t affect your credit temporarily the way hard inquiries do.
“The information in the credit reports will not only enable you to see all of your financial accounts in one place, but reviewing them may also help you spot signs of identity theft,” Bisritz-Balkan says.
Monitoring your score’s fluctuations every few months can help you understand how well you’re managing your credit and whether you should make any changes.
According to Ulzheimer, “as long as you pay your bills on time and as long as you keep your credit card balances modest and as long as you only apply for credit when you need it, then you really have no choice but to have a good score.”
©2019 Bankrate.com
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