5 steps to increase your credit score in 2021
While this does not influence our opinions on the products, we do receive compensation from partners whose offers appear here. We are always on your side. See our full advertiser disclosure here.
Have a large credit score is important. Without one, you might struggle to get a mortgage, rent a house, or even get approval. credit card. If you’re not happy with how your score looks, the good news is you can improve it. And the start of a new year is a great opportunity to do so. Here’s your step-by-step guide to closing 2021 with a much higher number.
Step 1: Set a goal
It’s one thing to say you want to improve your credit, but it’s another to set a specific goal. Determine what your short-term financial goals are and the score you’ll need to achieve them. For example, if you are hoping to get a mortgage At the end of 2021, you’ll need a minimum score of 620 to qualify, but you’ll need a score in the mid-700 or higher to get the best available fares.
Step 2: Pay all your bills on time
Your payment history is the most important factor that goes into calculating your credit score. As such, just paying every bill on time in 2021 could dramatically increase your score. To achieve this, try to automate as many invoices as possible. This way, you won’t have to worry about when payments are due. Also configure a budget to follow so that you can manage all your invoices and not fall behind.
Step 3: Reduce expenses to pay off existing debt
The less debt you have on your credit card, the better your score will improve. It’s because use of credit, which indicates the amount of revolving credit you are using at a time, is another important factor in calculating your credit score. A credit card balance over 30% of your total credit limit can hurt your score, so use your budget to figure out where you can spend less. Then use those extra funds to reduce your existing debt. If your total credit limit is $ 10,000 and you currently owe $ 5,000 on your various credit cards, your credit usage is 50%. Reducing that balance to $ 3000 will help your score increase (not to mention save you money on interest).
Step 4: Continue to check your credit reports
Your credit accounts, debts, and payment history are all summed up on a nifty document called your credit report. You actually have three credit reports because each of the major reporting bureaus – Experian, Equifax, and TransUnion – issues one on your behalf. The information in your credit report will have an impact on your credit score, so it is important to check these reports for errors. If you spot an error, like a debt that was declared overdue that you paid off years ago, having it corrected could help your score improve quickly. Normally you are entitled to a free credit report from each bureau only once a year, but until April 2021 you can access a free copy every week.
Step 5: Limit your loan or credit card requests
Every time you apply for a new loan or credit card, it counts as a difficult investigation on your credit report. Too many difficult requests can lower your score. One serious investigation, however, won’t do as much damage, and in some cases a new loan or credit account can actually help boost your credit. How? ‘Or’ What? Take the example above, where you owe $ 5,000 in credit card debt against a credit limit of $ 10,000. This places your credit usage above the desired threshold of 30%. However, if you open a new credit card account with a limit of $ 5,000, this increases your total limit to $ 15,000. Suddenly your credit utilization rate is 33% much healthier.
The higher your credit score, the easier it will be for you to borrow affordable money when you need it. If you start 2021 with a lower score than you would like, use the next 12 months to build it. That way, you’ll be in a much stronger position to kick off 2022.