Introduction
Credit rating is an essential feature in the financial life of an individual since it determines the chances of getting credit facilities such as loans, credit cards as well as housing. To the people in need of a loan or those planning to take a loan especially at Long Island State Employees Federal Credit Union (LISEFCU), it is helpful to know that when you enhance your credit score, your chances of getting the loan and the terms of the loan shall be better. The following are some of the measures you can take in order to increase your credit score and thus, make yourself more marketable to the lenders.
What Your Credit Score Is?
Parts of a Credit Score
A credit score is calculated based on several factors, including:
Payment History (35%):
It enhances your score if you pay your bills on time and with consistency.
Credit Utilization (30%):
The amount of credit currently being used by you in relation to your maximum credit limits on the credit cards.
Length of Credit History (15%):
Older credit accounts are beneficial to your score in the credit report.
New Credit Inquiries (10%):
If you make too many inquiries within a short time, you will be likely to have your score reduced.
Credit Mix (10%):
Credit cards, mortgages, loans, etc. can enhance your score, but they should be of different types.
Ways can help you in increasing your credit score
Review Your Credit Report
Start by obtaining your credit report from the three major credit bureaus: Equifax, Experian, and TransUnion to credit bureaus, to name but a few. Scan for any mistakes that may have been made when compiling the report that could be lowering your score. Challenge any errors on the credit bureau to have them removed.
Pay Bills on Time
Paying on time is one of the most important aspects that have a bearing on your credit score. Some of the payment reminders that you can set are daily, weekly, or monthly payment reminders to avoid missing a due date. You are likely to be penalized even with one late payment.
Reduce Credit Card Balances
Ideally, credit utilization should not exceed 30% of the credit limit on your credit card. If you have high credit card balances, develop a strategy on how you are going to reduce them. Pay off cards with the higher interest rates first, or the snowball method for the accounts with lesser balances.
Avoid New Credit Inquiries
Each new credit inquiry can slightly lower your score. Avoid applying for new credit cards or loans before applying for a major loan, such as a mortgage or auto loan, unless absolutely necessary.
Keep Old Accounts Open
The length of your credit history affects your score. Keep older accounts open, even if you don’t use them frequently. Closing old accounts can reduce your overall credit history length and increase your credit utilization ratio.
Diversify Your Credit Mix
A diverse credit mix can positively impact your score. If you only have credit cards, consider adding a different type of credit, such as a personal loan or a mortgage, to your credit profile.
Become an Authorized User
If a family member or friend has a good credit history, ask to become an authorized user on their account. Their positive payment history can boost your score without requiring you to use the account actively.
Settle Outstanding Debts
Work on settling any outstanding debts, especially those in collections. Paying off collections accounts may not immediately improve your score, but it demonstrates responsible financial behavior to future lenders.
Use a Secured Credit Card
If you have trouble getting approved for a regular credit card, consider a secured credit card. These cards require a security deposit, which acts as your credit limit. Using a secured card responsibly can help rebuild your credit.
Monitor Your Credit Regularly
Regularly monitor your credit score and report to stay informed about any changes. Many credit card companies and financial institutions offer free credit monitoring services.
Benefits of a Higher Credit Score
Better Loan Terms
A higher credit score can qualify you for lower interest rates and better loan terms, saving you money over the life of the loan. At LISEFCU, a strong credit score can increase your chances of loan approval and provide access to more favorable financial products.
Increased Credit Limits
Lenders are more likely to offer higher credit limits to individuals with good credit scores. Higher credit limits can improve your credit utilization ratio and provide more financial flexibility.
Improved Housing Opportunities
Landlords often check credit scores as part of the rental application process. A higher score can improve your chances of securing a rental property and may result in better rental terms.
Enhanced Employment Prospects
Some employers check credit scores as part of their hiring process, especially for positions that require financial responsibility. A good credit score can enhance your employment prospects.
Lower Insurance Premiums
Insurance companies may use credit scores to determine premiums. A higher score can result in lower premiums for auto, home, and other types of insurance.
Conclusion
Improving your credit score requires time, patience, and consistent financial habits. By understanding the factors that influence your credit score and taking proactive steps to address them, you can enhance your creditworthiness and secure better financial opportunities. LISEFCU offers resources and support to help members improve their financial health and achieve their financial goals. Whether you’re looking to apply for a personal loan or simply want to strengthen your financial profile, these strategies can set you on the path to success.
