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Managing your finances and debts is essential. And it is equally important to enhance your credit score. And when you decide to do that, you might feel it be a difficult task. Not everyone is aware of a credit score. However, the best part is here is that you need to work in small ways to master the credit and maximize your FICO score.
Importance of enhancing FICO scores
There are several ways of improving FICO scores. But it is essential to understand what you should at all be interested in enhancing it. All through your life, chances are you will need to borrow money, at some phase of time. However, several people can manage their spending. Others need a mortgage for buying a car or need an auto loan to purchase a vehicle.
Irrespective of the reason of why you need to borrow money, your credit score will impact the capacity to borrow money. It will also affect the interest rate that you get. Also, the difference between a good credit score and a lesser one can indicate that you might have to pay more than $1,00,000 interest on a span of $3,50,000 mortgage. You have a tremendous amount of money to spend, simply because you didn’t put in the hard work, to enhance the credit score.
How can you enhance the FICO scores or your credit score?
A few essential steps are using which you can improve your credit score.
1. Always check the credit reports for accuracy
Do you want to enhance your credit? And you haven’t yet checked your credit report? If yes, then you are going the wrong way. You have websites where you can check the credit report. Sometimes, these websites provide you with an estimated credit score that is close to accurate. However, it doesn’t get based on the FICO formula. You have many ways to access this score for free.
The moment you get the credit report, it’s essential that you assess its accuracy. Based on an FTC study, almost one in every four customers recognized mistakes on the credit report that can impact their credit scores. It suggests that reporting mistakes will happen. Whenever you come across an error, make sure to correct the same. It will help in enhancing the credit.
2. Ensure that you make timely payment to credit accounts
Your payment history has a crucial role to play in calculating the credit score. People know that failing to pay the credit accounts will negatively impact their score. However, you can’t realize that late payments will keep standing on the report for as long as seven years. On the other hand, if you make payments on time, it provides you with prospective lenders comfort that you are accountable with the money. If your credit record shows that you fail your debts, then it is a wise decision to change this pattern at the earliest.
There are chances that you won’t be able to pay the credit cards off every month! And this gets widely considered as an ideal approach, making lesser but regular payments that will keep your account in perfect standing. Do you fail to remember your payments? If yes, then opt-in for an automatic payment system with every credit account. And this way you will not miss any payment. You only have to make sure that you have the correct amount of money to clear all the payments. It is essential to ensure this, as the majority of lenders will eventually charge you a specific fee for lack of proper funds.
3. Reduce the credit utilization
Another essential factor you need to consider is estimating the credit amount that you can use as a total percentage of the available credit. It means when you get a credit card worth $2,000 limit, and you have a balance of $1,000, then you are making use of 50% of the credit.
The lesser credit utilization you have, the more lucrative you are to the lenders. It is because it signals that you don’t overextend and are less likely to make use of the credit responsibly. When you browse through the internet, you will find various instructions about credit utilization. Some people will suggest that it’s always better to stay less than 35%. On the other hand, there will be another school of thought that would recommend you to be at 25%.
But there’s one universal fact that most people agree upon – it is reduced utilization is always beneficial. Based on a recent FICO report, the ones that have a FICO 8 score of 785 and more, on average, the credit utilization rate is 7%. Several people have recorded a boost in their credit scores, the moment they have reduced their utilization rate.
There’s yet another way for lowering the credit utilization? It is to ask for a credit limit increase. The scope of your request getting approved is very low. When you don’t have a solid track record of making payment as well as correct credit score, you might as well ask that. You can also bear in mind that excess credit might be dangerous when you have the urge to spend more.
4. Manage your credit accounts that get sent to the collections
When you have unpaid reports that get sent to groups, it can hurt your credit score. Since your credit score can have an impact on your financial status, you must resolve any problems that occur with the lenders. Trying to understand the way to manage accounts sent for collections needs time and patience.However, the core takeaway is to ensure that you ask for a debt verification letter before you pay lenders who claim that you owe money to them! It is also very reasonable for the banks to sell loans in other banks as well as lenders. And when you pay without requesting verification, you might be in the risk of getting associated with a wrong lender. These are some of the essential steps you can follow to enhance your FICO scores.