Having poor or bad credit can make it hard to get a car loan, but it’s not the end of the world. In fact, there are several ways for you to increase credit score. Granted, nothing will give you a perfect score of 850 overnight, but with time and proper budgeting, you could see your credit ease into the green.
But before we tell you how to increase credit score, it might be beneficial to explain how your score is determined.
One of the most popular scores out there is the FICO® score. This is calculated using several pieces of data from your credit report. This data is organized into five categories, each of which is weighted differently to produce your overall score. Let’s take a closer look.
Attributed Weight by Category
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- New credit: 10%
- Credit mix: 10%
As you can see, a lot goes in to determining your credit score. Now let’s take a look at some of the ways on how to increase credit score.
Get Up-to-Date on Payments
As outlined by the FICO® score, you can see that payment history is the biggest factor contributing to your credit score. That’s why it’s so important to make regular monthly payments on or before the due date. This shows lenders that you’re a reliable borrower.
If you have any missed or late payments, pay them now. Do your best to get current so you can begin making monthly payments on time.
Pay Down Your Debt
Having a lot of debt signals to loaners that you could have trouble making payments in the future, making you a risky borrower. Take a look at your debt and come up with a plan to start paying it down. Focus on those loans with the highest interest rates and tackle them first while still making regular payments for your other loans.
Paying down your debt will show lenders that you’re serious about paying back the money owed.
Keep Your Credit Card Balances Low
Now that you’ve paid down your debt and are making regular payments, it’s a good idea to keep your credit card balances low. Maxing out your credit limits can lower your credit score, but having a $0 balance every month won’t necessarily improve your score either.
Use some of your available credit and make payments regularly. Try to use no more than 30% of your available credit.
Don’t Open Too Many Accounts
Trying to increase your available credit by opening numerous accounts won’t help increase your credit score. In fact, it will probably have the adverse reaction. Instead, work on paying down your debt and making on-time payments. Don’t worry about closing credit accounts you don’t use since they’ll still be on your credit report for at least seven years.
Remember that there’s no easy way to magically improve your credit score overnight. However, by following these tips, you’ll be well on your way to increasing your credit score.