A credit score is considered one of the most important aspects of a professional’s financial health. That number (often referred to as a FICO score, which ranges between 300 and 850 with ratings from “Poor” to “Exceptional”) has a tremendous impact on an individual’s ability to borrow. Your credit score often contributes to other important factors in borrowing like amount, interest rate, and fees.
When people don’t take care of their financial health, they can suffer personally and professionally. According to FICO, the average American’s FICO score is at an all-time high of 716, which is rated “Good,” but there is certainly room for improvement. While it is possible to increase your credit score, it takes time to put in the work and see the results. Below are four impactful steps you can take today to improve your credit score and put yourself in a better financial position.
4. Make payments on time
Payment history is the top factor affecting your credit score, with creditors using it to calculate 35% of your overall score. This is based on whether you pay your bills on time and lenders use this to determine your risk as a borrower. Even one late payment can cause your score to drop (especially if it is more than 30 days overdue), which is why it is essential to make sure that you pay your creditors on time.
3. Monitor your score
Regularly monitoring your score is empowering. You can hold yourself accountable for improving your score, understand why your score fluctuates, stay informed about account activity, and be alerted to any potential fraud. By monitoring your credit score, you can ensure you’re making improvements and begin to understand when you might qualify for better offers.
Also, if you have an authorized user on one of your accounts, monitoring is another way to protect yourself and ensure your accounts remain in good standing. Even if you’re a busy professional who has delegated someone else to manage your finances, it’s a good idea to check your credit regularly to ensure the details are intact.
Pro tip: Register with a service like Credit Karma to monitor your credit score and accounts on a regular basis in real-time. Many services are free, and you can check your credit as often as you’d like with no impact on your score.
2. Don’t close old accounts
Believe it or not, closing inactive accounts can negatively impact your score, as fewer lines of credit aren’t necessarily better. When you close an account, your credit availability drops. Also, closing old accounts can cause your credit utilization rate to increase and shorten your overall credit history—two things you want to avoid to maintain a healthy score.
Pro tip: Keep your oldest accounts open to show your credit history. Even using an old card annually (and then paying it off in full when it’s due) can help it remain active. If you get a letter in the mail that says your account will be closed due to inactivity, making a purchase can keep it open.
1. Don’t get close to your credit limits
One-third of a FICO score is determined by how much you owe on all of your accounts. With revolving credit availability making up 30 percent of an overall score, using too much may imply to some lenders that you’re overextended—even if you have the income to pay it off. Just because you have high limits doesn’t mean you have to maximize them.
Pro tip: Don’t max out your cards or lines of credit just because you can. If you’re already in that position, consider a debt consolidation loan to free up lines of credit and work toward paying off what you owe with one simple monthly payment.
The impact of a better credit score
Working toward improving your credit score today can have a tremendous impact on your borrowing power tomorrow. A higher credit score can help you increase your chances of receiving approval, higher amounts, and more competitive rates. These can set you up for financial success. Whether you’re looking to grow your existing business or start a new venture, improving your credit score is one of the first steps you should consider. Exercising these tools will make you feel more confident when applying for financing.
Improving your credit score takes time. BHG Financial offers several loan and credit card solutions to help you get the financing you need today while putting your financial health on the right track. Contact one of our financing specialists to get started or estimate your payment in as few as 30 seconds without any cost or commitment by visiting our Payment Estimator below.