Did you know that 45 percent of Americans have a credit score below 600? Experts such as Edmonton, Alberta Finance Manager Kashane Walters know many people do not realize that their credit score is lower than it should be because they are unaware of some things that are dragging it down. Here are six things that might be holding your credit score back and how to fix them.
Credit Fraud and Inaccuracies
Your credit report includes information about your credit history, including any late payments, loans, and other financial account activity. This information is used to calculate your credit score, which is a number that lenders utilize to evaluate your creditworthiness. If there is inaccurate information on your credit report, it could lower your credit score and make it more challenging to be approved for a loan or line of credit.
That is why it is essential to check your credit report regularly for any inaccuracies. You can get a free copy of your credit report from each central credit reporting agency once per year. If you see any errors, you can dispute them with the agency and have them corrected. By taking this step, you ensure that your credit score is as high as possible.
Late Payments
Kashane Walters says one of the most important things you can do to maintain a good credit score is to make all of your payments on time. This includes your mortgage, car loan, credit card bills, and any other type of loan or a financial account you have. Even if you can only afford the minimum payment, it is essential to make it on time.
If you missed any payments in the past, now is the time to catch up. Your credit score improves as you start making timely payments again. And if you need help staying organized and remembering to pay your bills on time, consider signing up for automatic bill pay. This way, you ensure that you always make your payments on time without any effort.
High Credit Utilization
Your credit utilization ratio is the amount of debt you have compared to your credit limit. For example, if you have a credit card with a $1000 limit and a balance of $500, your credit utilization ratio would be 50 percent. It is essential to keep this number low, because it shows lenders that you are not maxing out your credit cards and that you manage your debt responsibly.
Ideally, Kashane Walters says to aim for a 30 percent or less credit utilization ratio. To lower your balance, you can either pay down your existing debt or ask for a higher credit limit from your lender. If you have multiple credit cards, consider transferring some of your debt to a card with a lower interest rate or transferring it to a higher credit limit.
New Credit Applications
Every time you apply for a new line of credit, the lender makes a hard inquiry on your credit report. This can temporarily lower your credit score by a few points. In addition, if you apply for multiple lines of credit at once, this can have an even more significant impact on your score.
That is why it is important to only apply for new lines of credit when you need them. If you are thinking about applying for a loan or credit card, try to shop around and compare offers from different lenders first. This way, you know what terms you qualify for before applying.
Lack of Credit Diversity
Your credit mix comprises the different types of credit accounts you have, such as credit cards, loans, and lines of credit. Having a good mix of different types of credit helps improve your credit score, because it shows that you can manage other types of debt responsibly.
If your credit mix is lacking, Kashane Walters says to consider taking out a small loan or opening a new line of credit. Just ensure you can make all of the payments on time and keep your balances low. By diversifying your credit portfolio, you give your score a boost.
Closing Old Accounts
When you close an old account that you no longer use, it can hurt your credit score. That is because it lowers your average account age and potentially increases your credit utilization ratio.
If you have an old account that you no longer use, it is best to leave it open and just stop using it. This way, you keep the account active and avoid any negative impact on your credit score.
Final Thoughts
By following these tips, you can help improve your credit score and make it easier to be approved for loans and lines of credit in the future. Remember to check your credit report regularly for any inaccuracies. Also, always make your payments on time. You ensure that your financial future is bright by taking these steps.
