Many factors contribute to high credit scores, such as timely payments, low balances on credit cards, and a varied mix of credit accounts, both old and new. Some factors, however, can decrease your credit score such as missed or late payments, collections, and judgements. There are ways you can improve your credit score for free.
Paying on time
Paying on time is one of your most important assets in building credit. FICO estimates that about 35% of credit scores are based on payment history. It is essential to pay at most the minimum monthly payment on all your bills.
Payment history
Your payment history plays a major role in your credit score. This account for 35% your total score. Your payment history shows lenders how likely it is that you will make timely payments. This is the most important part of your credit history, so make sure you pay your bills on-time. You can still improve your credit score by not making late payments, but it is best to make an effort to avoid them.
Credit utilization ratio
How to calculate credit utilization is the first thing you need to know about credit utilization. Your credit utilization ratio is the total amount of credit you have used divided by the total amount of available credit. This number will tell you how well your debt management is working. The best credit utilization rate is lower than 30%.
Diversifying your credit portfolio
Diversifying credit is one of many ways to improve your credit score. While it is important for you to have a mix of credit types, it is equally important not to over-use your credit. You should have both revolving and installment loans in your credit mix.
You can get a quick loan
In times of crisis, quick loans can help. You may need to wait a few days to get the money you need. These loans are less risky than unsecured loans which can take several weeks to be approved. Alternatively, you can borrow money from a friend or family member. This is a faster and more expensive option than traditional loans but it is also cheaper. Just remember that you will have to sign a loan agreement. You should also build an emergency fund so that you can borrow money quickly when you need it.
Charging for collection or charge-offs
Your credit score can be affected by charge-offs. They stay on credit reports for seven-years. Fortunately, you can take steps to rebuild your credit and get back to a high credit score. These steps will take time, but will allow you to make a positive impact on your credit report and score.