You might wonder, how could improving your credit score be hard? Well, actually there is a lot that goes into it and it’s not as simple as paying off debt then keeping a low balance on each account. In fact, it’s so much more complicated than that and many people, due to lack of knowledge do things that in fact will hurt their chances of raising their score at all. Let me show you around the inner workings of what makes a good credit score…it will surprise you!

Monitor your payment history.

Your payment history is one of the most important factors in determining your credit score.

To improve your payment history:

• Always make payments on time.
• When you can’t pay the full amount that you owe, make at least the minimum payment.
• If you think that you will be unable to pay a bill, contact the lender immediately.
• Even if a bill is in dispute, do not skip payments.

Use credit wisely.

Limit your credit-card spending to the amount you have been authorized. If you have a card with a $5,000 limit, try not to exceed that amount. Borrowing more than the authorized limit on a credit card can lower your credit score.

It is better to have a high credit limit and use less of it each month than to have a low credit limit and use more of it. Preferably try to use less than 50% of your limit at any given time.

Lenders see you as a greater risk if you use a large portion of your available credit. Even if you pay your balance in full by the due date, they may be reluctant to lend money to you again.

To determine the best way to use your available credit, calculate your credit usage rate by adding up the limits of all your credit accounts.

This includes:

• credit cards
• lines of credit
• loans

Increase the length of your credit history.

A credit score is determined by the length of time your accounts have been open, as well as how much you use them. A low credit score may indicate that you have recently opened credit accounts or that you don’t use them very often.

When you transfer an existing credit line to a new account, the new account is considered new credit.

For example, some credit card offers come with a low introductory interest rate for balance transfers. This means you can transfer your current balance to this new product. The new product is considered new credit because it does not exist on your credit report until you open it.

Limit your number of credit applications or credit checks.

Applying for credit is a normal part of life. When lenders or others check your credit history with a credit bureau, it shows up as an inquiry on your report.

If there are too many credit checks in your credit report, lenders may think that you’re:

• urgently seeking credit
• trying to live beyond your means.

How to control the number of credit checks

• limit the number of times you apply for credit.
• get your quotes from different lenders within a two-week period when shopping around for a car or a mortgage. Your inquiries will be combined and treated as a single inquiry for your credit score.
• apply for credit only when you really need it.

There is a difference between “hard hits” and “soft hits”.

“Hard hits” are credit checks that appear in your credit report and count toward your credit score. Credit reports often use the term “inquiries” to refer to these checks, which anyone viewing your report will see.

Examples of hard hits include:

• an application for a credit card
• some rental applications
• some employment applications

“Soft hits” are credit checks that appear in your credit report but are not seen by anyone but you. These checks do not affect your credit score in any way.

Examples of soft hits include:

• requesting your own credit report
• businesses asking for your credit report to update their records about an existing account you have with them.

Use different types of credit.

If you have only one type of credit product, such as a credit card, your score may be lower than if you have multiple types of credit. It’s better to have a mix of different types of credit, such as:

• a credit card
• a car loan.
• a line of credit

Credit products with different types of interest rates and payment structures may help your credit score. Make sure you can afford to pay back any money you borrow. Otherwise, you could end up hurting your score by taking on too much debt.

Ask the Experts

If you’re looking to improve your credit score and repair your damaged credit, it can be a long, uphill battle. But if you follow these tips—and they are worth following—you’ll be on track to reverse the effects of negative credit marks on your credit score. No matter where you are today, there’s no time like today to start taking steps towards improving your financial future!

If you found this information helpful and would like to learn more, our Orchid Financing brokers be happy to get on a call and walk through a series of questions and scenarios that might help you make a more informed decision.

Reach out to schedule a free consultation today!