by Lyle Daly | June 20, 2021
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Here's how you can make real progress on your credit score by the end of the summer.
If you're planning summer financial goals, your credit score is a great place to start. A higher credit score is always useful, as it could help you:
It's also a smart summer goal because you can see a noticeable improvement in your credit score within a matter of months. You just need to follow a few tips.
To start, you're going to need your credit reports from each credit bureau and your current FICO® Score.
You can pull a free credit report from the three credit bureaus (Equifax, Experian, and TransUnion) online. Visit AnnualCreditReport.com to request it. Legally, you're entitled to one free annual credit report from each credit bureau, but free weekly credit reports are currently available through 2022.
Review each credit report to see if there's anything that doesn't look right. Credit report errors are more common than you'd think, and they can negatively affect your credit score. If you find an error, dispute it with the credit bureau that issued the credit report.
Your FICO® Score is important because that's the most widely used type of score by lenders. There are several free ways to get your credit score, with Experian CreditWorks and Discover Credit Scorecard being two options that provide your score using the FICO system. Once you have a way to check your score, you can monitor it and make sure it's improving.
If you have any credit card debt, paying that down could have a big impact on your credit score.
One of the most significant factors in your credit score is your credit utilization ratio. This ratio measures your credit card balances compared to your credit limits. A rule of thumb is to keep this at 30% or lower. For example, if you have a credit limit of $1,000, it's best to avoid carrying a balance over $300.
The good news is that credit utilization is also a factor that you can improve on quickly, because only the current number matters.
Let's say you have $5,000 in balances compared to $10,000 in total credit. You do the math and find that you can pay an extra $500 per month towards your credit card debt. In three months, you'll have gone from 50% utilization to 35% and bumped up your credit score.
It's easy to ramp up your spending during the summer. You might find yourself going out more because of the sunny weather, or maybe you decide to splurge on a vacation.
There's nothing wrong with treating yourself, but it's best if you can do this without taking on credit card debt. As we covered earlier, your card balances are a factor in your credit score. If you put an extra $1,000 on your credit card that you can't pay off by the due date, it will raise your credit utilization and possibly ding your credit.
Another issue is credit card interest, which the card issuer can charge if you don't pay your full statement balance.
Your payment history is the factor that affects your credit score the most. Although it takes time to build a good payment history, every on-time payment matters. And even a single late credit card payment can be a major hit to your credit score.
Technically, your payment isn't considered late on your credit history until it's 30 days past due. If you pay your credit card bill 29 days late, it would count as an on-time payment for credit score purposes.
The credit card company can still charge you a late fee as soon as your payment is late, so there's a financial incentive to pay by the due date.
Make sure to pay your credit card bill by the due date every month. Most credit card companies have an auto-pay option you can set up so you don't miss any payments. By the end of the summer, you'll have a few more on-time payments on your credit history to pump up your score.
When your goal is to raise your credit score, be careful about credit card applications. There are a couple reasons these can get in your way.
Every time you apply for new credit, there's a hard credit check during the application process. A hard credit check lowers your credit score a small amount. The average consumer sees their FICO® Score drop by fewer than five points. It's not much, but it does slow down your progress. Multiple hard credit checks can add up and lower your score more.
The length of time you've had your credit accounts open is another factor in your credit score. By opening a new account, your average account age gets lower. That can also affect your credit.
If you start now, you could come out of this summer with a higher credit score. You'll also build financial habits that help you continue improving your credit going forward.
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