A Guide – How to improve your credit score in 2023

by Brad Fein
Credit score or rating scale

Your credit score is a critical factor in your financial life. It heavily affects your ability to get loans, credit cards, and even jobs. A good credit score can lead to better interest rates and more favourable loan terms, while a poor credit score can make it difficult to get approved for credit at all.

According to a recent report by Experian, the average FICO credit score in the United States reached a record high of 710 in 2021, up from 703 in 2020. This increase may be due in part to pandemic-related financial assistance, such as stimulus payments. However, many Americans still struggle with low credit scores and face financial challenges as a result. This article outlines some ways to improve your credit score.

What is a credit score and why is it important?

A credit score is a numerical representation of your creditworthiness, used by lenders to determine your risk level as a potential borrower. This score is based on factors such as your credit history, debt-to-income ratio, and payment history.

Lenders, banks, credit unions, and other financial institutions use your credit score to determine whether to approve you for credit or loan applications. It will also affect the interest rate and terms that you will be offered if approved. 

A good credit score can lead to better loan terms, lower interest rates, and greater financial opportunities, while a poor score can make it harder to get approved for credit and may result in higher interest rates and less favourable terms.

How can I check my credit score?

You can check your credit score for free from many major credit bureaus including Equifax, Experian, and TransUnion, once a year at AnnualCreditReport.com. You can also sign up for a credit monitoring service or even check whether your bank offers free credit score tracking.

Regularly monitor your credit score and report to ensure that everything is accurate. This helps keep your credit score high. If you notice any errors or suspicious activity, report it right away to ensure that your credit score does not unfairly drop.

How can I improve my credit score?

Pay your bills on time

Payment history is a significant factor in your credit score. Paying your bills on time is a crucial step to improving your credit score. If you have trouble remembering due dates, consider setting up automatic payments or payment reminders.

Reduce your credit utilisation ratio 

Your credit utilisation ratio is the amount of credit you use compared to your credit limit. A high utilisation ratio can hurt your credit score as it means you use more credit than you are allowed to. Try to keep your utilisation below 30% of your available credit.

Apply for credit sparingly

Each time you apply for credit, it can lower your credit score slightly. Try not to apply for many credit cards or loans in one go, for example. Try to be selective when applying for credit and only apply when you actually need it.

Use secured credit cards

A secured credit card is a type of credit card that requires a cash deposit as collateral before you can use it. These can be easier to obtain than regular credit cards as the deposit acts as security for the card issuer, meaning they take on less risk.

Secured credit cards are often used by people who have poor or limited credit history. By using them responsibly and making payments on time, you can start to build or rebuild your credit score.

How long does it take to improve my credit score?

The time it takes to improve your credit score can depend on a variety of factors, but typically takes about 6 months of consistent good credit behaviour to see significant improvement. It can take significantly longer for more serious credit issues. The quicker you make changes such as paying debt in time, the faster it will improve. 

Can I hire someone to help me improve my credit score?

Yes, you can hire a credit repair company, but have some caution and do a lot of research before committing to an agreement like this. Many credit repair companies may make unrealistic promises and charge high fees for services that you can do yourself for free. 

Before hiring a credit repair company, do some thorough research into their reputation and read reviews from previous clients. Check whether they have reviews from real people (rather than faceless, nameless bots), and preferably also a real address listed on their website. 

What are some common mistakes people make that negatively impact their credit score?

Some common mistakes that can negatively impact your credit score include:

  • Making late payments or missing payments 
  • Constantly applying for credit instead of applying sparingly 
  • Opening too many new credit accounts at once
  • Closing old credit accounts, which can shorten your credit history
  • Failing to check your credit report for errors or inaccuracies

What should I do if I find errors on my credit report?

If you find errors on your credit report, you need to dispute them with the credit bureau that provided the report. Send them a letter or email explaining the error. Be sure to include any supporting documentation such as receipts or account statements. The credit bureau will make any corrections to your credit report if their investigation corroborates the information you sent them.

Can a bankruptcy or foreclosure be removed from my credit report?

Bankruptcy and foreclosure can stay on your credit report for up to 7-10 years. Before that time is up, you can try to negotiate with the creditor or lender to remove the mark, but they are not required to do so.

How can I build credit if I don’t have any credit history?

You can start building credit by opening a credit card or a small loan, such as a secured credit card or a credit-builder loan. You can also become an authorised user on someone else’s credit card to build credit, as long as the primary cardholder makes payments on time. 

Bad credit written in a memo-stick

Can I get a loan with bad credit?

Yes. It can be more difficult to get approved for a loan with bad credit, especially to get a loan with low interest, but some lenders offer loans to people with bad credit. You may need to consider alternative sources such as online lenders, as high-street lenders are significantly less likely to give loans to people with bad credit.

0 comment

You may also like