Let’s look at how to increase your credit score
Unless you plan to live off the grid and do everything with cash, your credit score is extremely important. Taking the time to learn how to increase your credit score is a must. Looking back at our previous article on setting financial goals, this could be a great one for you to set. Obviously higher is better so you should aim to get a score of 750 or higher, that will put you in the top bracket to secure the best rates. Time to dig in and learn how to increase your credit score.
What is the difference between a FICO score and credit score
There are different kinds of credit scores to judge your creditworthiness. FICO is a very popular one you’ve probably heard about over and over. FICO is just the brand credit score. You also have the VantageScore which was put together by 3 companies Equifax, Experian, and TransUnion, in 2006 and it is FICO’s biggest competitor. While the FICO score is more popular among lenders the VantageScore is gaining traction. We’ll go over both below.
How your credit scores are determined
Your FICO score is comprised of five components:
- Payment history: 35 percent
- Amounts owed: 30 percent
- Length of credit history: 15 percent
- New credit: 10 percent
- Credit mix: 10 percent
Comparatively, your VantageScore is comprised of six components:
- Payment history: 40 percent
- Depth of credit: 21 percent
- Utilization: 20 percent
- Balances: 11 percent
- Recent credit: 5 percent
- Available credit: 3 percent
Where to get your credit score
As I mentioned before, myFICO is one of the biggest credit score companies. They are used by most lenders to determine lending approvals. You can subscribe to their service to monitor all aspects of your credit. You may be shy to pay when you can use free services we’ll talk about later but you get what you pay for. Here are some of the services you get with myFICO.
- Access to a new 3-bureau credit report & 28 FICO®Scores
- Credit Report Change Alerts
- Qualifying Interest Rate Estimator
- Intelligent Identity Theft Monitoring
- $1M Identify Theft Insurance
- Lost Wallet Protection
- FICO score simulator
- Plus more
Credit Karma has grown in popularity over the years. They give you the ability to monitor your credit score for free. They show you your score from 2 bureaus, Equifax and TransUnion.
Here are some of the main features of Credit Karma:
- Access to TransUnion and Equifax generated credit scores
- Credit report card that explains the details of your credit report
- Ability to receive alerts when your credit report changes
- Scores updated weekly
- Credit factor information
- ID Monitoring
Credit Sesame is another “free” credit monitoring service similar to Credit Karma. They only uses Experian to generate its credit score. You can also see a breakdown of your credit usage and active loans. A nice feature their free account offers is $50,000 identity protection insurance. They are several different premium packages to unlock more features including the following (features depend on package selected):
- 1 Bureau DAILY Credit Score Updates
- 3 Bureau Monthly Credit Score Updates
- 3 Bureau Monthly Full Credit Report
- 24/7 Live Experts to Help Solve
- Credit Report Inaccuracies
- 3 Bureau Credit Monitoring with Alerts
- 24/7 Live Experts Provide
- Stolen/Lost Wallet Protection
- Black Market Website Monitoring
- Public Records Monitoring
- Social Security Number Monitoring
A great service and I would recommend trying it out.
Equifax is one of the larger credit reporting companies and caters to both businesses and individuals. If you need it for your business they really offer a lot of tools and features that others don’t. Plus, they have a TON of content for you to take advantage of. Their plans start at $14.95 per month. It monitors all three of your nationwide credit reports and alerts you within 24 hours of major changes.
Experian is probably the most robust credit monitoring service out there. Their platform offers a plethora of services from credit reports to identity protection. Experian’s main credit monitoring package is $4.99 for the first month and then $24.99 after that. It gives you your FICO score, reports from all 3 bureaus updated monthly, credit monitoring, and more. They also offer a free basic package that lets you see your Experian credit report every month. It’s hard to find a more thorough credit monitoring service than what you get with Experian.
TransUnion offers similar monitoring at the other companies. They typically aren’t as popular as say, Experian but they still have a good service. Pricing for credit monitoring is $19.95 per month. For that you get the standard updated TransUnion credit report and score, email updates of critical changes, lock and unlock credit reports, $1m ID theft insurance, and more.
Now I am sure you have heard about freecreditreport.com as they use to have a ton of commercials advertising their service. By law in the US, you are allowed 1 free credit report from each bureau per year, so 3 total. You can use this site to get them. A good idea is to space them out every 4 months, this way you have a steady update of whats going on. If you pay for one of the services above this doesn’t matter as they give you more frequent updates plus automatic alerts.
How to improve your credit score
Now that you’ve picked your poison and figured out where your credit score stands its time to learn how to increase your credit score. Depending on which service you used, you should have seen your actual credit report. This differs from your credit score as it is an actual report that tells all your credit history and usage. The first thing to note, make sure you recognize all the accounts on there. If there is ANYTHING that looks suspicious you need to contact one of the bureau companies to get it taken care of.
Next, you want to figure out where you struggle. If you scroll back up you will see what they use to determine your credit score so use that to help. If you have large credit card debts or loans you want to work to pay those off. You want to learn to start controlling your credit card debt and make sure you can pay it off in full. Carrying a balance is not a good way to increase your score. If you have any auto loans or other loans, you want to focus on paying those off as quickly as possible. Make sure you add this stuff to your budget to help make it easier. If you haven’t already, make sure auto pay is set up so you never miss a payment, missed payments will hurt your score.
You need to realize that increasing your credit score is not an overnight thing, it takes time and consistency to improve your score. It could take months or even years before you hit the score you want so don’t give up if the results don’t happen as fast as you want. When you pay off credit cards, don’t close them. Your credit utilization is an important factor to your score so if you close an account, you’ll increase your utilization percentage which will have a negative effect.
How to Increase Your Credit Score Final Thoughts
Now that you learned how to increase your credit score you are on your way to reaching your financial goals. Hopefully, it’s not overwhelming to you because it’s actually pretty simple to improve your credit score. You just have to plan things out and make sure you consistently do what you need like paying down credit cards and loans, making every payment in full, avoiding hard inquiries, etc. You’ll thank yourself the next time you need to get a car loan or even a mortgage for improving your credit score.
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