There are a lot of important ratios in the personal finance world. Of which, your credit score is quite possibly one of the most important ratios, and figures, you should always be aware of. Your credit score will likely influence the majority of your personal finances.
From getting approved for a loan to the interest rate you are given on that loan, your credit score can either save you or cost you a great deal of money. If you’re suffering from a low credit score, you may be questioning how to improve your credit score? We’ll be addressing that in greater detail below.
What is a credit score?
In its simplest form, a credit score essentially informs a lending institution how creditworthy you are to your financial obligations. This simply means, how likely are you to honor your financial commitments?
Will you pay off your debt in full, and on time? Will you be late paying your recurring bills, such as the electric bill or gym membership?
If you pay all your bills on time, you will likely have a higher credit score. If you fall behind on paying your bills, or if you have an account in collections, your credit score will be negatively impacted and you will have a low credit score.
What is a good credit score?
A credit score is a number between 300 and 850. There are 5 categories your credit score can fall into:
- Very bad: credit scores between 300 and 559
- Bad: credit scores between 560 and 649
- Fair: credit scores between 650 and 699
- Good: credit scores between 700 and 749
- Excellent: credit scores between 750 and 850
Your credit score is forever moving
It’s important to note, your credit score is forever moving. You could have a low credit score today, and work on improving it. Within a few months, you can have a fair or good credit score. Alternatively, you could have an excellent credit score today, and quickly have it drop to fair or bad if you started falling behind on your payments, or neglected to pay off your debt obligations.
How to improve your credit score
If you’re wondering how to improve your credit score, you’re in luck. First and foremost, it is completely possible to improve your credit score. Secondly, you can do so with just a few easy-to-follow steps.
Obtain a credit report
The first step in improving your credit score is to obtain a credit report. You can obtain this information online from credit reporting agencies. In this report, you must look for discrepancies. Is there anything in collections that shouldn’t be? If so, you must work on disputing that claim.
Pay your bills
As you work on disputing any claim that needs to be disputed, you also need to pay off all your financial obligations on time. That includes your cell phone bill, gym membership, cable bill, and all the debt payments you are responsible for.
Even if you cannot pay off the entire monthly bill, make the minimum payment. Showing the financial institutions that you are doing all you can to be financially responsible is important, and is a key step to improving your credit score.
Do not close your credit cards
Even if the credit card is paid off and in full, having the account open is beneficial. The length in which you have a revolving debt instrument, or an open line of credit open, improves your credit score. You do not need to owe money on a credit card for it to be active. But in the eyes of a lender, an open credit card account still counts as a relationship with a debt instrument.
Work with a credit repair specialist
In some cases, working with a professional credit repair specialist is beyond helpful. Credit repair specialists typically charge a monthly fee, and you will be working with this specialist for a few months.
They will provide you with guidance to improve your credit score and will help you dispute false information on your credit report. All in all, a credit repair specialist exists to help you boost credit.
Your credit is the foundation
Your credit score is the foundation of your personal finances. If your credit score is bad, it can present many financial challenges and can cost you a great deal of money via interest expenses.
If you have a good, or great credit score, you will save thousands of dollars in interest expenses, and you will have an easier time obtaining a loan. Loans are incredibly useful when it comes to financing expensive purchases, such as a mortgage or vehicle. The importance of a healthy credit score should not be taken lightly, as it is not possible without deliberate effort.