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DIY Guidelines for Construction Your Credit score Rating

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DIY Credit BuildingIf you’re looking to buy a home, a car, or even take up a personal loan but have a less-than-optimal credit score you’ll need to understand your credit rating, learn how it is calculated, and take steps to improve your credit score.

Below is a breakdown of do-it-yourself tricks to improve your creditworthiness.

1. Understand factors contributing to your credit score

These factors are weighed to determine your credit score as follows: Payment history- 35%, Amounts owed- 30%, Credit history- 15%, Credit mix- 10%, and New credit- 10%.

Knowing this profile will assist you in identifying areas to improve. For example, making timely car payments can influence both payment history and the amount owed, greatly influencing your score.

2. Check your credit report regularly and dispute any errors

The three major credit bureaus, Equifax, TransUnion, and Experian are mandated to give 1 free annual report. In addition, you can do a soft credit inquiry once a month.

Because the credit report is used in determining your credit score, it is advisable to check it for any errors. If you unearth incomplete or inaccurate information, there are avenues to dispute the errors and make the necessary corrections.

3. Get credit for things you’re already doing

Fortunately, it is possible to include your monthly bills such as rent on your report. This will boost your credit score and lenders may use it while reviewing your future credit applications.

If you are already paying rent, talk to your landlord and confirm if he is reporting your payment to any of the bureaus. If not, decide to report either through your landlord or rent payment agencies.

4. Open a secured credit card

You must use credit to build your credit score. The best way to achieve this, especially if you have no credit history, is to sign up for a secured credit card.

Most importantly, make sure you make payments on time and keep your balance low, around 10% of available credit if possible.

Tip: Take a credit card that reports to all the 3 bureaus to get a comprehensive credit report.

5. Become an authorized user on another person’s account

Request a family member with an excellent payment history to list you as a secondary account holder of their credit card. This is one of the best, easiest, and fastest ways to increase your credit rating.

In addition, both you and the primary cardholder should practice smart credit habits; avoid going into debt or making late payments to avoid a negative item on your report.

6. Lower your credit utilization ratio by asking for a credit increase

To show lenders that you are not dependent on credit, ensure that your credit utilization ratio is 30% or below. Credit utilization is basically the amount of credit you are spending in relation to your available credit.

Therefore, the easiest way to lower it is by requesting your credit card provider to increase your credit limit.

Tip: To boost your credit score, maintain the same spending habits by not utilizing the increased credit (i.e., maintain the same average balance on your card despite having an increased limit.)

7. Take out a credit builder loan

Institutions such as community banks and credit unions give out low-interest loans to people with low or no credit to purposely boost their credit score.

The loan is held in a savings account until the loan is repaid. Further, to help boost your rating, they report all payments to credit bureaus.

Downside: You can only access the funds after the full pay-off of the loan. As such a credit builder loan may not be ideal if you are urgently in need of money.

8. Review and improve your credit behavior

A good credit score not only determines your credit approval but also guides your cost of living and investment opportunities. It also shows your responsibility with money to the lender.

Additionally, your credit may even affect your capability to rent an apartment or get a job. Therefore, you must make sure to properly manage your credit usage and pay your bills and credit card payments on time.

Final Word

In conclusion, to improve your credit score you can do it yourself without engaging the services of an expert by adopting good financial habits. That said, it’s never a bad idea to get the input of a financial advisor when charting a path to excellent credit.

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