A recent report published by CFSI confirms that 31 percent of consumers haven’t seen their credit scores in the past year, while 7 percent didn’t even know they had a credit score. What many of these people don’t know is that a good credit score can save them a lot of money, bring them better loan terms and even preferential auto and homeowners insurance rates. For instance, a good credit score can save you hundreds or even thousands of dollars in interest when taking out a mortgage to buy a new home or when getting a loan to pay for repairs after a natural disaster.
If you want to boost your credit score this year, below are four habits that can help you achieve your goal.
- Pay bills on time. Payments account for 35 percent of the total credit score, according to the FICO scoring model. Thus, paying monthly bills on time will have a positive effect on the credit score. Though managing bills can be tough, especially when they’re starting to pile up, one thing anyone can do to ensure that every single bill is paid on time is to establish a calendar and create reminders for due dates. Financial advisors also recommend using an easy and affordable payment method, such as direct debit, online banking or mobile applications that allow people to pay bills quickly and easily with their mobile devices.
- Reduce revolving balances. Making payments on credit cards frequently is another way to boost your credit score. A credit utilization rate of about 30 percent (the ideal rate is less than 10 percent) will help keep the revolving balance low. But this doesn’t mean that a person who wants to build a good credit score should no longer use his credit cards until the credit utilization rate reaches 30 percent. If the person is carrying high balances, he can reduce his debt by lowering ongoing monthly expenses and using cash surplus to pay off debt. Also, closing the credit cards you no longer use is a huge mistake. Making small purchase with these credit cards and then paying off debt on time is one of the best strategies to boost your credit score.
- Consider debt-to-credit ratio. Debt-to-credit ratio is another element that impacts the FICO score. Though many people are tempted to pay off the smaller balances to get rid of debt, they should consider paying the most maxed-out balances down to 30 percent first. Let’s assume that you have two credit cards: one with a 70-percent debt-to-credit ratio ($7,000 out of $10,000) and the other one with a 20-percent debt-to-credit ratio ($2,000 out of $10,000). In this case, you should make smaller payments toward the smallest balance and larger payments toward the largest debt. Paying down the $7,000 to, let’s say, $4,000 will help you boost your credit score faster than paying off the smaller balance first.
- Review the credit report regularly. Checking credit reports regularly enable people to identify errors, such as wrong addresses, misspelled names, unrecorded payments and bank accounts they’ve never opened. Not only will this help them minimize fraudulent activity on their accounts, but it will also allow them to have all the errors corrected immediately, which may result in a higher credit score.
If your credit score is lower than you would like, adopting these habits will help you improve it in a relatively short time frame. Once you achieve your credit score goal, contact us at North Florida Mortgage for the most advantageous mortgage solutions, friendly financial advice and reliable service.