Your credit score indicates your trustworthiness and likelihood of paying off obligations. It may affect your loan, credit card, mortgage, and other financial options. A higher credit score might get you better lending rates and conditions, while a lower score can restrict your alternatives and cost you more.
Did you know 11 words may improve or hurt your credit score? These terms may affect how lenders and credit bureaus view your credit history and conduct.
In this article, we will explain what these 11 words are and how you can use them to improve your credit score.
The 11 Words That Can Change Your Credit Score
1. Check Out Your âCredit Reportsâ
Your credit reports are the records of your credit activity and history, compiled by the three major credit bureaus: Equifax, Experian, and TransUnion. They contain information such as your personal details, accounts, balances, payments, inquiries, and any negative items such as late payments, collections, bankruptcies, etc.
You should check out your credit reports at least once a year, or more often if you are planning to apply for credit or make a big purchase. You can get a free copy of your credit reports from each bureau every 12 months through [AnnualCreditReport.com]. Checking your credit reports can help you spot any errors or inaccuracies that could be hurting your credit score. If you find any mistakes, you can dispute them with the credit bureaus and get them corrected or removed.
2. Dispute âDerogatoryâ Marks
Derogatory marks are negative items on your credit reports that indicate that you have had trouble paying your debts in the past. They can include late payments, charge-offs, collections, foreclosures, repossessions, bankruptcies, etc. Derogatory marks can lower your credit score and stay on your credit reports for up to seven years, or 10 years in the case of bankruptcies.
If you have any derogatory marks on your credit reports, you can try to dispute them with the credit bureaus and the creditors or collection agencies that reported them. You can do this by sending a letter or filling out an online form, explaining why you think the information is inaccurate or incomplete, and providing any supporting evidence or documentation. The credit bureaus and the creditors or collection agencies have 30 days to investigate your dispute and respond. If they agree with you, they will update or delete the information from your credit reports, which can boost your credit score.
3. Dispute âLate Paymentsâ
Late payments are one of the most common and damaging derogatory marks on your credit reports. They occur when you pay your bills or debts later than the due date, usually by 30 days or more. Late payments can lower your credit score by as much as 100 points, depending on how recent, frequent, and severe they are. They can also affect your credit score for up to seven years, although their impact will diminish over time.
If you have any late payments on your credit reports, you can try to dispute them with the credit bureaus and the creditors or lenders that reported them. You can do this by following the same process as disputing derogatory marks, but you may also have to provide a good reason or explanation for why you paid late, such as a financial hardship, a medical emergency, a natural disaster, etc. You can also try to negotiate with your creditors or lenders to remove the late payments from your credit reports in exchange for paying the debt in full or setting up a payment plan.
4. Dispute âAccurate Informationâ
Sometimes, you may have negative information on your credit reports that is accurate and valid, but you still want to get rid of it. For example, you may have paid off a collection account or settled a debt, but the credit bureaus still show it as unpaid or outstanding. Or you may have closed an account that had a positive payment history, but the credit bureaus still show it as open or active.
In these cases, you can try to dispute the accurate information with the credit bureaus and the creditors or lenders that reported it. You can do this by following the same process as disputing derogatory marks or late payments, but you may have to provide proof or confirmation that the information is outdated or incorrect, such as a receipt, a statement, a letter, etc. If the credit bureaus and the creditors or lenders agree with you, they will update or delete the information from your credit reports, which can improve your credit score.
5. Aim for 30% âCredit Utilizationâ
Credit utilization is the ratio of your total credit card balances to your total credit card limits. It measures how much of your available credit you are using at any given time. For example, if you have a credit card with a $1,000 limit and a $300 balance, your credit utilization is 30%. Credit utilization is one of the most important factors that affect your credit score, accounting for 30% of your FICO score.
You should aim for a low credit utilization ratio, preferably below 30%, to show that you are not overusing your credit and that you can manage your debt responsibly. A high credit utilization ratio, above 30%, can lower your credit score and indicate that you are relying too much on your credit and that you may have trouble paying your bills. You can lower your credit utilization ratio by paying off your credit card balances, keeping your credit card spending under control, and increasing your credit card limits.
6. Limit âHard Inquiriesâ
Hard inquiries are requests made by lenders or creditors to check your credit reports and scores when you apply for credit or other financial products, such as loans, credit cards, mortgages, etc. Hard inquiries can lower your credit score by a few points, depending on how many you have and how recent they are. They can also affect your credit score for up to two years, although their impact will fade after 12 months.
You should limit the number of hard inquiries on your credit reports, especially within a short period of time, to avoid hurting your credit score and raising red flags for potential lenders. Too many hard inquiries can suggest that you are desperate for credit or that you are taking on more debt than you can handle. You can limit hard inquiries by only applying for credit when you really need it, shopping around for the best rates and terms within a 14- to 45-day window, and avoiding unnecessary credit checks.
7. Increase your âCredit Limitsâ
Credit limits are the maximum amounts of money that you can borrow or spend on your credit cards or other lines of credit. Credit limits are determined by your lenders or creditors based on your income, credit history, credit score, and other factors. Credit limits can affect your credit score indirectly through your credit utilization ratio, as explained above.
You can increase your credit score by increasing your credit limits, as long as you do not increase your credit card spending as well. Increasing your credit limits can lower your credit utilization ratio, which can boost your credit score. You can increase your credit limits by asking your existing lenders or creditors for a credit limit increase, or by applying for a new credit card or line of credit. However, you should be careful not to trigger a hard inquiry or take on more debt than you can afford.
8. Get a âNew Credit Cardâ
Getting a new credit card can help you improve your credit score in several ways, as long as you use it wisely and responsibly. A new credit card can increase your credit limits, lower your credit utilization ratio, diversify your credit mix, and add a positive payment history to your credit reports. All of these factors can boost your credit score over time.
However, getting a new credit card can also have some drawbacks that can hurt your credit score in the short term. A new credit card can trigger a hard inquiry, lower your average age of accounts, and tempt you to overspend or miss payments. Therefore, you should only get a new credit card if you need it, if you can qualify for a good offer, and if you can manage it properly.
9. Pay Down Your âCredit Balancesâ
Credit balances are the amounts of money that you owe on your credit cards or other debts. Credit balances can affect your credit score directly and indirectly, depending on the type and amount of debt you have. For example, credit card balances can impact your credit score through your credit utilization ratio, while installment loan balances can impact your credit score through your debt-to-income ratio.
You can improve your credit score by paying down your credit balances, especially those with high-interest rates and fees. Paying down your credit balances can lower your credit utilization ratio, reduce your debt-to-income ratio, save you money on interest and charges, and show your lenders and creditors that you are serious about paying off your debt. You can pay down your credit balances by making more than the minimum payments, paying off the highest interest debts first, using the debt snowball or debt avalanche methods, or consolidating your debt.
10. Keep âOld Accountsâ Open
Old accounts are credit cards or other lines of credit that you have had for a long time, usually more than seven years. Old accounts can benefit your credit score in several ways, such as increasing your credit limits, lowering your credit utilization ratio, raising your average age of accounts, and adding a positive payment history to your credit reports. All of these factors can enhance your credit score and demonstrate your credit stability and reliability.
You can improve your credit score by keeping your old accounts open, even if you do not use them frequently or at all. Closing your old accounts can reduce your credit limits, increase your credit utilization ratio, lower your average age of accounts, and remove positive payment history from your credit reports. All of these factors can hurt your credit score and make you look less creditworthy. You can keep your old accounts open by using them occasionally and paying them off in full, or by putting them on autopay or locking them away.
11. Pay Bills On Time
Paying bills on time is the most basic and essential way to improve your credit score. Your payment history is the single most important factor that affects your credit score, accounting for 35% of your FICO score. Paying bills on time shows your lenders and creditors that you are trustworthy and responsible, and that you can honor your financial obligations.
You can improve your credit score by paying all your bills on time, every time, without fail. This includes not only your credit card bills and loan payments, but also your rent, utilities, phone, internet, cable, insurance, and any other recurring or non-recurring bills. Paying bills on time can add positive payment history to your credit reports, which can boost your credit score and offset any negative items. You can pay bills on time by setting up reminders, alerts, or automatic payments, or by using a budgeting app or tool.
