Read below, The Bargain Radar’s breakdown of the best ways to improve your credit score!
High Impact: Credit Usage
Try to keep your overall percentage of total credit used available under 49% to start with. The 30-49% band equates to a ‘Fair’ score and will have a high impact on your overall score. Ideally, once you get your usage down to under 29%, you will be classed as in a ‘Good’ range. To understand this % score, say you have a total credit balance available of $10,000 – including all credit cards, personal loans, store cards – if your overall ‘used’ amount is $2,800 then the percentage used is 28%.
Tip: Once you have paid off a credit card, do not close that account, as if you use $0 of a $2,000 credit card limit, this contributes hugely to your overall credit usage percentage.
High Impact: Payment history
Always make sure to make your monthly payment per credit card or loan on time. The later you pay the amount, the higher the impact it will have on your credit score. If you are not able to make your payment on time, the number of days late you make the payment also impacts your score significantly. For example, a payment that is less than 30-days late will have a lesser impact than one that is 60 or 90-days late. Letting your payments go and not dealing with them can also result in ‘Derogatory marks’ being recorded on your report. These are very difficult to get rid of. Speak to your debtors if you are struggling to make payments and try to come to some arrangement.
Tip: Make a detailed schedule and always know exactly when your payments are due. If the payment date doesn’t line up with your payroll, get in touch with your credit card company and ask them to change the date to one that allows you to meet your commitments longer term.
Medium Impact: Length of Credit History
The total average length of time you had accounts open shows creditors that you can maintain accounts and meet your commitments responsibly. This area can be a difficult effect in the short term, but if you maintain payment history and keep your accounts open – especially when they are paid off – you will see a growing and steady impact on your Credit Score over time.
Tip: Do not close accounts when you have paid one-off. Generally, your accounts stay on your report for 10 years (sometimes less) and then drop off, which can have a negative impact on your score, so keep the account open and keep the balance at $0 or as low as you can.
Low Impact: Hard inquiries
When your finances are not in the best of positions, you can often try to apply for a new credit card, thinking this will help to ease the short-term problems you are having. This is something to avoid at all costs but can be used to your advantage once you see improvements in your overall score. If your credit score is not in the ‘Fair’ or better bands, you are likely to be refused a new credit card or loan. As a double negative, this ‘Hard inquiry’ also goes on your report as another negative impact.
Tip: Once you have got your score into a healthier state, using a ‘Hard inquiry’ to get a loan or credit card to positively impact one of the other higher impact areas above can be a good move. For example, get a Credit Card with a low credit limit (of say $500) and do not use it. This adds $500 to your overall credit balance and will lower your ‘Credit usage’ percentage score.
Low Impact: Total accounts
The ideal total number of credit accounts, including credit cards, loans, store cards, etc, is 11 or more. The reporting services like to see that you have been able to be approved for credit and used those accounts responsibly (meaning that they have not fallen delinquent or been closed by the creditor) over time. Again, this area is lower impact than the ‘Payments on time’ and ‘Credit usage’ and often are only really factors that can be used once those main impact areas are rectified. You should view these are areas to work as a secondary priority.
Tip: Check all the accounts on your report are in fact yours. If you have a credit card, for example, that was used in a past relationship and that you no longer have any responsibility for, let the credit reporting company know and have it taken off your account.