A good credit score is important. A good credit score can open up a world of opportunities, from buying a house to getting an auto loan or a cell phone contract.
Having a high credit score also gives you access to some of the best financial deals and services in the market. If you’re just starting out with your credit and would like to know how you can improve it fast, read on.
This article covers everything you need to know about improving your credit score, from understanding your FICO score and how it works to the best ways to improve your credit score quickly.
What is a Credit Score?
A credit score is a number that lenders use to determine whether or not you’re a good candidate for a certain loan or credit card. Credit scores range from 300 to 850, so the higher your score, the better your chances of getting approved for a loan or credit card.
If you have a low credit score, you may have a hard time getting approved for loans or credit cards. Lenders use many different factors to determine your credit score, including:
- How much debt you currently have
- How much debt you have in the past
- How long it took you to pay off the debt before you incurred more
- How much debt you currently owe
- How many accounts you currently have
- How long it took you to open the accounts
- How long it took you to pay the accounts
How Does a Credit Score Work?
For every loan you take out, lenders look at your credit score. If you currently have a credit score of 500, for example, a lender would look at that number when deciding whether or not to approve your loan application.
Your credit score is a number between 300 and 850, but most lenders use a 400 number as a “target credit score.” Your credit score is like a number that lenders use to determine whether or not you’re a good candidate for a certain loan or credit card.
Before a lender makes a final decision on whether or not to approve your loan or credit card application, they will take into account several other factors, like the type of loan or credit card you’re applying for, your income and how much you owe.
A credit score is important for a few reasons. First, it’s a number lender look at when deciding whether or not to approve your loan. If you want to borrow money, you’ll have to show your lender that you’re a good risk, which means they’ll have to approve you even if you don’t have the best credit.
3 Ways to Increase Your Credit Score
There are a few things you can do to improve your credit score quickly.
First, keep your debt level low and only take out low-interest loans. If you only take out one $5,000 loan instead of three $2,000 loans, that one $5,000 loan is going to have a much higher impact on your credit score compared to the smaller debts.
Second, try to keep all of your accounts open and make on-time payments as much as possible. Opening new accounts are going to affect your credit score, so you want to make sure you don’t do that unless you have to.
Finally, make sure you keep your credit card utilization low. Credit utilization is the amount you owe (including the interest) divided by the amount you borrowed. When you use your card for $500 and you owe $350, your credit utilization is 35%. That’s how credit score lenders are going to measure how good of a risk you are.
6 Things That Affect a Credit Score
As we discussed above, there are a few things lenders take into account when calculating your credit score. Let’s take a closer look at what those are:
- What type of loan/credit did you apply for
- How much debt do you owe
- How long it took you to pay off the debt
- How long it took you to open the accounts
- How long it took you to pay the accounts
- How much debt you currently have
How to Get a Good Credit Score?
First, make sure you keep your debt at a low level. This includes paying off any existing debts as quickly as possible and only taking out the minimum amount of new debt.
Next, make sure your accounts are open and in good standing. This includes keeping your credit card balance at low levels, making on-time payments, and keeping your account open for at least one year.
Finally, make sure you apply for no more than one credit account at a time. This includes both credit cards and loans. Doing this will make sure your credit score stays high and you can only apply for one account at a time.
Conclusion
Credit scores are an important tool for lenders. A good credit score can open doors to new opportunities, while a bad credit score can prevent you from borrowing money or even opening a bank account.
There are a few ways you can improve your credit score quickly, including keeping your debt level low, only applying for one account at a time, and keeping your accounts in good standing.