- Your past financial actions can affect your credit score for many years.
- There are many steps you can take to improve your credit score over time.
- Paying down debt, making on-time payments, and opening a new line of credit can help your credit score rise.
Taking these steps will make a huge difference to your credit score over time.
Good credit is a valuable asset to have, especially if you plan to borrow money in the future. Lenders use your credit score to assess your risk of default and to decide how much to charge you in interest. Those with higher scores pay less than those with lower scores.
Raising your credit score isn't always easy, and in most cases, it takes a few years of hard work to see significant change. But here's a few signs that your score could get a boost in 2023.
1. You've been paying all your bills on time
Payment history is the single biggest factor influencing your credit score, which makes paying bills on time the most important thing you can do if you're trying to keep your score high. Even a single late payment can drop your score noticeably.
But before you panic, you should know that being a single day late on your bill here and there isn't going to lead to problems with creditors. Most won't report your late payment to the credit bureaus unless it's at least 30 days late. Still, you should strive to pay by the due date listed on your bill whenever possible.
2. You've been paying down your debt
The second-biggest factor in your credit score calculation is your credit utilization ratio. This looks at how much credit you're using versus how much you have available to you. For example, if you have a $2,000 balance on a credit card with a $10,000 limit, your credit utilization ratio is 20%. Ideally, you should keep this under 30% whenever possible. A higher utilization ratio tells creditors that you're living beyond your means and may have trouble paying back borrowed money.
Paying down debt, especially high-interest credit card debt, will lower your credit utilization ratio and help boost your credit score. It can also give you some more breathing room in your budget each month. If you've made progress with your debt repayment in 2022, you can expect to see a higher credit score as we enter 2023.
3. You've recently opened a new credit card or plan to do so
Opening up a new credit card could also help lower your credit utilization ratio because it's making more credit available to you. But whether this actually helps you depends on how you use it. If you rack up a large balance that you aren't able to pay back at the end of the month, this could hurt your credit utilization ratio over time.
Opening a new card will also lower the average age of your credit accounts. This is another factor that makes up your credit score, though it's not as important as the credit utilization ratio. Still, an older average credit account age can help you. That's why it's best not to close old credit cards unless they charge you an annual fee.
4. It's been a while since you made any financial slip-ups
Late payments typically stay on your credit report -- and thus, affect your credit score -- for seven years. Bankruptcies stay on your report for 10 years. If you have made either of these errors in the past few years, you can expect to have a lower credit score because of them.
But once you've passed the seven- or 10-year mark, they'll fall off your record and your credit score should rise considerably, as long as you don't make these same mistakes again.
It's impossible to say exactly when or how much your credit score will improve in 2023. It depends on a lot of personal factors. But keeping the above tips in mind can help you make smart decisions going forward so you can continue progressing toward your goal.
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