Top 5 Methods to Improve Your Credit Score in 2023
If you have ambitious budgetary goals for this year, here are the best ways to boost your credit ratings and enjoy the best out of your finances.
Maybe you want to purchase a new residence or vehicle, or perhaps open a new travel rewards credit card to assist with the financing of your upcoming vacation. Whatever you decide, the importance of working on improving your credit score should not be overlooked while considering your best options.
A higher credit score means more available credit and lower interest rates. For example, if your credit score is 700 instead of 650, you might become eligible for a new vehicle loan with an interest rate of 4.9% instead of 7.25%.
So, what steps can you take to improve your score? In order to start off the year with better credit, here are some valuable tips from the pros.
1. Clear Holiday Credit Card Balances
After the holidays are over, you may find yourself burdened with additional expenses because of overspending on festive meals, travel, and presents. Credit scores may take a hit if problems like late payments or high balances extend into the new year, as the two most significant elements in determining your credit score are your payment record and your credit usage.
Create a strategy to reduce the amount of holiday debt you have. Financial consultant Jeff Arevalo from GreenPath in Farmington Hills, Michigan recommends looking through your bank statements to get a handle on how much money you owe and how much you can realistically set aside each month to go toward paying it off. To put it bluntly, if you’re merely making the bare minimum payments, it will take a lot longer to get out of debt. In Arevalo’s opinion, due to rising interest rates, making just the required payments would not lead to financial stability. Furthermore, understanding your budget will help you determine whether or not you can afford to pay off your obligations faster than the minimum required. One solution could be paying down your debt with any December bonuses or raises you received.
According to Todd Christensen, education manager at Money Fit, in Boise, Idaho, another technique worth exploring involves making payments over the minimum amount on your most recently created balances first. Since FICO and VantageScore give a higher value to actions on new and recently used accounts, the manager claims that this method, which he calls a “debt landslide,” might also help improve credit. So Christensen suggests that if you want to increase your credit score more quickly, you should prioritize paying down your amounts on your newest accounts.
At the same time, if you want to keep your credit score in good standing in 2023, one thing you can do is to set up either automated payments or payment alerts to ensure that you always pay your financial obligations on time.
2. Limit Credit Applications
Multiple credit applications within a short time period might be seen as suspicious by credit bureaus and have a detrimental impact on your overall rating. Every time you apply, a thorough check will be made on your financial history, which might trigger the lowering of your score.
According to Kate Mielitz, a certified financial counsellor in Olympia, Washington, if frequently requiring credit, the credit scoring algorithm might assume the applicant is desperate, and this kind of behaviour does not make for excellent credit. If lenders determine that you pose too great of a danger to them, they may refuse your loan request or provide you with a multitude of unfavourable conditions.
Moreover, any credit application should be given serious consideration before moving forward with any major credit-related decisions.
3. Extend Your Credit Line
Make a request to have your current account limitations raised. If you can keep your spending under control, increasing your credit limit will reduce your usage ratio. The best way to improve your credit score is to maintain your usage rate below 30%.
4. Pay Your Rent And Utilities On Time
In most cases, rent and utility payments are not included in credit score calculations. However, there are options available to help those with little or no credit history establish a positive payment record. As an example, Piñata is a free service that compiles renter information, as others platforms might demand small rates. However, when using these services, make sure they report to at least one credit bureau, experts warn.
In addition, you have the choice, via Experian Boost, which is a free product offered by Experian, one of the three main credit agencies, to record transactions made from your associated bank accounts for things like rent, utilities, and streaming services.
5. Verify Your Credit Records
Credit history is documented in files called credit reports. Because scoring firms access the data included in reports to determine your ratings, keeping up with them is essential. Get in touch with the credit reporting agency immediately if you discover an error that is negatively impacting your credit score and make sure the error is fixed.
Establish a routine of reviewing your credit reports. You may get your free credit report every week until the end of the year at AnnualCreditReport.com.
