Unhappy with Your Credit Score? Here's How to Fix It!
31 August 2020 0
31 August 2020 0

Alanna Abramsky
(Enriched Academy Financial Coach / AFCC)

Have you ever gone through your bank to take a look at your credit score and haven't been super happy with the results? Or have you ever looked into getting a mortgage or needing to borrow money, and nobody will give you a loan? It's likely because you don't have a credit score that's in tip-top shape. This article will explain what a credit score is, and how to increase it. 

What is a Credit Score?

You credit score is a number (typically between 300-900) that is based on your credit report. Your credit score your financial report card, and it’s used by lenders to predict the likelihood that you will repay any future debt. Your credit score is based off of your credit report, which is a summary of how you pay your financial obligations. Lenders use your credit report to verify information about you and how you have been paid off your financial obligations in the past.

Why is This Important?

Your credit score will determine if you are a risk to lenders and it will affect the interest rates you pay on any loans you applying for. If you have a “poor” or “fair” credit score, and are looking at securing a mortgage, you may not qualify through a bank or credit union. You may have to go with a B-grade lender or even a private lender, where you’re looking at interest rates 3-6% higher than a traditional A-lender.Your Credit Score is one of the metrics that we track in our Coaching program, and if you can believe it, we’ve helped our average coaching client increase their credit score by 21 points over a 6-month period.

How Can I Increase My Credit Score?

There are 5 ways to increase your Credit Score. All of these ways need to be monitored and effectively managed in order to work.

  1. Payment History: This is the most crucial factor in your credit score, and it makes up to 35% of it. Creditors want to know that you’re going to pay back the money you are asking to borrow from them, so they will look at what your payment history has been like from previous consumer debts. ALWAYS make your payments on time and make the full (or at least minimum amount owed) payment each time.
  2. Amounts Owed: This makes up about 30% of your overall score, so it’s an important one. Try to keep your credit utilization rate less than 35% of your available amount, and don’t max out all your available debt options. If you use a lot of your available credit on your debts, lenders see you as a greater risk, EVEN if you pay your balance off in full by the due date. For example, if you have a credit limit of $10,000, you should not carry a balance of more than $3,500.   
  3. Length of Credit History: This makes up about 15% of your score. Creditors and lenders like to see that you’ve been able to handle credit accounts correctly over a period of time. Newer accounts will lower your average account age, which may negatively impact credit scores. Never cancel one of your oldest cards because that marks the beginning of your credit history. 
  4. New Credit Applications or Credit Checks: Every time you apply for more credit, your score will be affected, so try to limit hard inquiries. There is a difference between a soft credit check (checking your credit score) and a hard credit check (looking for more credit). Every time you do a hard credit check, your credit score will be lowered. This takes place when you apply for a mortgage, loan or credit card. 
  5. Use Different Types of Credit: You should have at least two credit vehicles open (credit cards, LOC’s, car loans and mortgages.) Showing you can manage different types of credit will have a positive impact on your score. 

You should check your credit report and score once per year. One small error can have a significant long-term impact on your credit score. Your credit score is like your financial report card and having a bad score can have a negative affect on your long-term financial plan. We’ve helped 1000’s of clients increase their score. If you feel like you need a little one-on-one help, make sure to sign up for our free Financial Assessment Call.

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