8 Easy Ways To Improve Your Credit

April 14th, 2022 by

If you’re thinking about financing a new car, it’s best to know where your credit stands before applying for a car loan. Your credit score can be a major factor in whether you get financing. If you look into your credit score and find out that it’s not as great as you hoped it would be, there are changes you can make to improve your score in a short amount of time. Here are some steps to help get your credit ready for that new car loan.

Monitor Your Credit Scores and Reports

It’s important to check your credit history at regular intervals so you whether your credit is helping you or hurting you. Once a year, for free, you can contact each of the three major national credit bureaus and ask them for a copy of your credit report. After receiving and reviewing your reports, you can look at the five factors to better understand which parts of your credit history are working for you or against you. You can also use free credit monitoring programs through your bank or find a free app.

When looking at your credit report, there are five factors that influence your credit score, and each factor has a different percentage of impact. These factors and their percentages of impact are on-time payments at 35%, low balances at 30%, the age of your accounts at 15%, the types of accounts at 10%, and new credit inquiries at 10%. You can improve your credit score by making changes to increase each of these five factors.

Review Your Bill Payment History 

Your payment history, whether payments were made on time, late, or missed, has the biggest impact on your credit score. Keeping old accounts with no late or missing payments open can help improve your credit score. Consider taking all necessary measures to avoid late payments, such as automatic billing, setting payment due date alerts on your phone, or organizing a filing system for your monthly bills. Another option is to charge monthly bills to a credit card to create a history of on-time payments.

Adjust Your Credit Utilization by Paying Down Debt

credit score quality check

Image via Flickr by cafecredit licensed by CC BY 2.0

The next biggest impact on your credit score is the amount of your credit line that you’re using. The general guideline is to keep your credit card utilization at 30% or less. For example, if you have a credit card with a $1,000 credit limit, you’d try to keep the balance under $300. To improve your credit score, you can pay your credit card balances in full each month. But, if that’s not possible, pay as much as possible beyond the minimum amount due. Another option is to ask for a credit limit increase, which will lower your utilization percentage.

Leave Old Accounts Open

The third biggest impact on your credit score, although only 15% of your credit calculation, is the age of your credit accounts. You appear more favorable to lenders when you have a long, healthy credit history. This is why people often leave lines of credit open even after they’ve paid off their debt. As a bonus, it also increases your utilization ratio.

To quickly increase the age of your credit, you can ask a trusted friend or family member to add you as an authorized user to one of their longstanding accounts, preferably one with perfect payment history. They don’t have to give you access to the account, but adding your name to the account will give you instant history. Another option is to work with a credit repair company, which helps you to do this same thing legally with a stranger.

Limit Hard Inquiries 

There are two types of credit inquiries: soft and hard. Soft inquiries don’t affect your credit score and include things like getting your own credit report, credit card companies checking your file, employers or landlords checking your credit, or checks by businesses or financial institutions you already work with. Hard inquiries affect your credit score, and they can affect it negatively for months or even years. Examples of hard inquiries include applying for a mortgage, auto loan, or credit card. To improve your credit score, avoid hard inquiries or ask for older or erroneous credit inquiries to be removed.

Increase Your Credit File

Many people don’t have enough credit history for the credit bureaus to generate a credit report or credit score. If your credit file is too thin, there are ways to grow it. One way is to find a credit program that takes alternative financial data, like banking and utility history, and includes it in calculating your credit score. Another way, if you are a renter, is to use a program that reports your rental payments to the credit bureaus. If you’re making rent payments on time, this information can help your score.

Dispute Any Inaccuracies 

Occasionally, mistakes are made. If you find something on your credit report that isn’t accurate, you have the right to dispute it. Disputing items doesn’t hurt your credit score in any way, and if you get the item fixed or removed, it can improve your score. You can file a dispute by contacting the credit bureau online, by phone, or by mail. The credit bureau will collect your information, contact the creditor, and verify the status of the account. If the creditor confirms the mistake, the credit bureau will fix it. If the creditor says there’s no mistake, nothing changes.

Consider Debt Consolidation 

If you have multiple lines of credit with outstanding debt, using a debt consolidation company or getting a debt consolidation loan could improve your credit score. When consolidating debt into one payment, you often get a lower interest rate, which equates to a lower monthly payment. It’s easier to keep track of just one payment versus multiple payments, which increases the likelihood of payments being made on time. Often, consolidating debt can help you pay it off faster, which improves your credit utilization. A balance transfer credit card with 0% interest is another way to consolidate your debt.

Here at Spokane Hyundai, we care about your credit not just to help you purchase a new vehicle but because we want the best for you. If you’re interested in financing a vehicle, please don’t hesitate to contact us. We’d love to help you improve your credit score and get your dream car.

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