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Take Back Your Credit Score

6 Strategies to Boost Your Borrowing Power

Your credit score helps lenders decide how much credit to offer you, and on what terms. This can make a big difference in anything from buying a home or car to starting a business. Fortunately, there are steps you can take to improve your credit score if it’s not where you’d like it to be.

Why do credit scores matter?

Most lenders rely heavily on your credit score to assess the level of risk involved in lending money to you. This affects not only whether you will be approved for a loan or line of credit, but also the amount of money you will be able to borrow and the interest rates you will have to pay. Generally, having a higher credit score allows you borrow money on terms that are more favorable to you, which gives you greater flexibility to pursue your financial goals.

What counts as good credit?

Credit scores usually range from 300 to 850, and are often broken down into the following tiers:

  • Excellent credit: 750 and above
  • Good credit: 700 to 749
  • Fair credit: 650 to 699
  • Poor credit: 550 to 649
  • Bad credit: 549 and below

How can I improve my credit?

Making major improvements to your credit score requires time and commitment, but you may see your efforts begin to pay off in as little as a month or two. Especially if you’re right on the edge between two credit tiers, an improvement of just a few points can make a real difference in your borrowing power.

1. Review your credit reports. The first step toward improving your credit score is to take a close look at your existing credit profile. This will help you understand your starting point and decide where to focus your efforts. It will also give you a chance to correct any errors or outdated information that may be affecting your credit score. You can get a free copy of your credit report every year from each of the three major credit reporting agencies: Equifax, Experian, and TransUnion.

2. Pay your bills on time. Regardless of the size of your bills, your payment history is one of the biggest factors that affects your credit score. Pay your bills on time and in full every month to avoid late fees and build a strong payment history. If you slip up and miss a payment, try to get back on track as soon as possible; the impact on your credit score depends in part on how late a payment is.

3. Use credit wisely. Although using credit can be part of improving your credit score, it’s important to do so carefully and strategically. Credit utilization, or the amount of your available credit that you are using at any given time, is another factor that can have a big impact on your credit score. Generally consumers should try to keep credit utilization low, around 30% or less. A great way to do this is by paying off your balance in full each month, which will also help you strengthen your payment history and avoid costly interest payments.

4. Limit hard inquiries. Each time you apply for a loan or a credit card, the lender makes what’s known as a “hard inquiry” into your credit history. Although hard inquiries are a necessary part of borrowing money, they can also have a negative effect on your credit score — especially if several occur within a short period of time. So, next time you’re invited to save 20% on a purchase by applying for a store credit card, think twice; the short-term savings could be more than offset in the long term.

5. Keep old accounts open. If you’re working hard to pay off debts and limit your credit use, you may be tempted to close your old credit accounts once the balance reaches zero. But closing old accounts can actually have a negative effect on your credit score, since it reduces the total credit available to you and thereby raises your credit utilization. Depending on the age of the account, closing an account could also reduce your overall credit age, which can also have a negative impact on your score.

6. Be patient & monitor your progress. Your credit score depends on many different factors, and it’s normal for it to fluctuate a little from month to month. If it drops a point or two here and there, don’t worry too much — just keep an eye on the big picture and try to keep it moving in an upward direction overall. To help you track your progress and stay motivated, you may want to consider using a credit monitoring app.

The information provided is general in nature and may not apply to your specific situation. Each credit reporting agency has its own credit score-generating algorithm, which is not known to the credit union; the steps listed in this blog are based on factors often referenced as contributors to the calculation of an individual’s credit score but are not confirmed factors.

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