For avid chess players, or bingers of The Queen’s Gambit on Netflix, a gambit is a familiar concept: open the board by sacrificing a piece for the sake of a later advantage. But did you know that your credit follows the same playbook? When your credit score is not perfect, it can seem counterintuitive to take on more credit or make changes to your financial picture. Still, these can be excellent strategies for building and maintaining your credit score.
In this article, we will cover four great ways to improve your credit health. But, to improve your credit score, you need to understand it first.
Also known as FICO (Fair Isaac Corporation) scores, credit scores offer a glimpse into your ability to pay back a loan. Your credit score influences getting approved for a credit card, student loan, rental application, or even getting cable and internet set up. Ranging from 300 to 850, the higher your score, the better your chances for speeding through financial roadblocks.
Your credit score is made up of five weighted categories, and your score can change each time new or updated information is reported by creditors.
When you submit an application for a personal loan or for a service that requires monthly payments, your credit score is often used to gauge what kind of risk you are. An institution can use two kinds of inquiries to check your creditworthiness: a hard credit inquiry or a soft credit inquiry.
A hard credit inquiry, also known as a “hard pull,” is typically done by a financial institution when you are applying for a revolving line of credit (credit card) or installment loan (mortgage, auto). A hard pull cannot be conducted without your permission as the borrower. On its own, a single hard pull will have a minor impact on your score. However, multiple hard pulls in a brief period can have a larger adverse effect on your FICO.
A soft credit inquiry, also known as a “soft pull,” can be conducted during events that do not necessarily result in taking on additional debt. Examples include background checks and pre-qualifications from lenders. Soft pulls can be conducted without your explicit permission. Unlike a hard credit inquiry, a soft pull does not impact your credit score, and the inquiry itself does not show up on your credit report.
Now that you understand what a credit score is and how it is used, here are four strategies you can use to improve your credit score:
By April Brissette
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