New year, new start – it is never too late to improve your credit score. As we head into 2022, here we share some top tips to get your credit score under control, which is important in establishing your business credit.
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What is your credit score based on?
A credit score is the value which expresses a person’s creditworthiness. It is used by credit card companies and loan providers to help them determine whether or not to approve an application, how much they should lend and under what terms.
The credit score represents whether the applicant is reliable at paying off their debt and if they can responsibly handle their finances. Different factors are assessed and analyzed to give a final score which is widely recognized across financial institutions and lenders. The number will fall between 300 and 800, with a higher score indicating more creditworthiness.
In general, a score of 580 to 669 is fair, 670 to 739 is good, 740 to 800 is good, and more than 800 is excellent. However, below 580 is viewed as a poor credit score.
There are certain factors used to calculate credit scores, although these factors may be weighted differently across different credit score companies.These are:
- Credit utilization (how much credit you have used vs. available credit)
- How long your credit history is
- How many accounts you have
- The type of accounts you have
- New applications for credit
- Payment history
- If any debt has been sent to collection, any foreclosures or bankruptcies
Top 5 Ways to Improve Your Credit Score This Year
1. Stay on top of your credit utilization rate
Your credit utilization rate looks at how much available credit you have and how much of that you have spent. It indicates to lenders how dependent you are on your credit and how responsibly you manage your personal finances. For example, if you have a credit card limit of $1000 per month, and only use $300, you will have a utilization rate of 30%. Experts recommend not exceeding 30%. Keeping this ratio in check will improve your credit score and make you more likely to be able to borrow money in the future.
2. Join the electoral register
If you are not already, you should join the electoral register. This is an easy and quick step that can make a big impact on your credit score. Lenders use the electoral register to verify that the information you have provided on your loan application is correct including name and address. This can improve your chances of being approved for a loan application and will help to boost your credit score.
3. Do not apply for multiple loans at once
If you are in need of money and want to maximize your chances of loan approval, it can be tempting to apply at many different providers. However, applying for multiple types of credit in a short space of time shows lenders that you are desperate for cash. This makes you look like a high-risk borrower and could make lenders less likely to want to approve your application.
Each application will also be recorded on your credit report and have the potential to knock a few points off your credit score. The more applications you put in, especially if these applications are rejected, the worse the impact to your credit score will be.
4. Dispute any errors on your credit report
Mistakes are easily made but could have a big impact on your credit score. Credit reports may show closed accounts as open, payments that were paid on time could be marked as late, or someone else’s credit activity might have been mixed up with yours. If you identify any errors, you can dispute them right away. Although the follow up takes some time (credit bureaus have 30 days to look into the errors and respond), once solved, it could quickly help to improve your credit score.
5. Start building your credit as soon as possible
The longer your credit history, the better it is for your long term financial prospects. If you start positive habits at the start of 2022, this will serve you in good stead not just for the rest of the year, but for the future in general.
If you have suffered a financial setback or negative mark on your credit report, it can be fixed with time. Financial experts suggest that the majority of credit situations can be fixed within 6-12 months and there is always the chance to start rebuilding your credit.
For those with a low credit score, it is in their best interest to start building credit as soon as possible as they are likely to see the biggest impact. Even for those who already have a high credit score, although they will not see such a big change, they can still take their high credit score to exceptional.
The earlier you start, the sooner you can start to build a consistent payment history and show creditors that you are a reliable borrower.
