iQuanti: Your credit can affect many of your financial choices. A good credit score can mean low-interest rates and easier approval for loans. A poor credit score, on the other hand, can mean high-interest rates and more difficulty getting a loan.
If you currently have poor credit, knowing how to build your credit score can put you on the path toward good credit. Here's what you should know about how to improve your credit score from poor to good.
What are poor and good credit score ranges?
There are score ranges that generally indicate poor credit and good credit. Be aware that creditors will also set their own standards of what scores they'll accept. A score that's 629 or below is usually considered poor credit, and a score that's between 690 and 719 is typically considered good credit.
How to boost your credit score
Here are some tips to help poor-credit borrowers increase their credit scores:
Pay your bills on time
Payment history makes up 35% of the data used to calculate your credit score. It's the most important factor in your credit score calculation. The reason it's used as a significant factor is that research has shown a track record of payment is usually the strongest predictor that you'll pay your debts.
Consistently paying your credit card debt and loans on time will help to raise your credit score. It'll show lenders that you're capable of taking out a loan and paying it back. An easy way you can consistently pay your debt on time is to set up autopay. If you prefer not to use autopay, you can set up a payment reminder instead. As you build up a history of paying your bills on time, your previous late payments will have less impact on your score.
Maintain a lower credit utilization ratio
The second most important factor in the calculation of your credit score is your credit utilization ratio. If you have a high credit utilization ratio, it can cause you to have a lower credit score. If you have a low credit utilization ratio, it helps to increase your credit score. It's ideal to only use up to 30% of your available credit.
As an example, if you choose to get a credit card with a $200 credit limit, you should owe no more than $60 on the card. You can also ask your credit card issuer for a credit limit increase to make it easier to spend less than 30% of your limit. If the issuer chooses not to give you a higher limit, they may still raise it in the future after you've made a certain number of consistent payments.
Minimize hard inquiries
When a lender or credit card issuer pulls your credit report from one of the three main credit bureaus, this is known as a hard inquiry. This can happen when you apply for a new credit card or loan. While a hard credit inquiry doesn't typically cause significant damage to your credit score, in some cases, it can lower your score by as much as 10 points.
Avoid applying for several credit cards in a short period of time. It's smart to only apply for a credit card once every six months. Use prequalification tools to find out if you're likely to be approved for an issuer's credit card. Following these tips will help get your credit score from poor to good over time.
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Original Source: How to Improve Your Credit From Poor to Good