A credit score is considered one of the most important aspects of a professional’s financial health. That number—FICO scores anywhere between 300 and 850, and rates from Poor to Exceptional—has a tremendous impact on an individual’s ability to borrow. Your credit score often contributes to other important factors in borrowing like amount, interest rate, and fees.
When people don’t take care of their financial health, they can suffer personally and professionally. According to CNBC, the average American’s FICO score is at an all-time high of 706, which is rated Good, but there is certainly room for improvement. While it is possible to increase your credit score, it takes time to put in the work and see the results. Below are four impactful steps you can take today to improve your credit score and put yourself in a better financial position for 2020.
1. Make Payments on Time
Payment history is the top factor affecting your credit score, with creditors calculating 35% of your overall score. This is based on whether you pay your bills on time or not, which lenders use to determine your risk as a borrower. Even one late payment can cause your score to drop (especially if it is more than 30 days overdue), which is why it is so important to make sure that you pay your creditors on time.
PRO TIP: Put your payments on auto-pay. As a busy professional with limited time, automatic payments are convenient and can ensure that your bills are paid on time, every time. Of course, continue to review your monthly statements for accuracy.
2. Monitor Your Score
Regularly monitoring your score is empowering. You can hold yourself accountable to improving your score, understand why your score fluctuates, stay informed of account activity, and be alerted to any potential fraud. By monitoring your credit score, you can ensure you’re making improvements and begin to understand when you might qualify for better offers. Also, if you have an authorized user on one of your accounts, monitoring is another way to protect yourself and ensure your accounts remain in good standing. Even if you’re a busy professional who has delegated someone else to manage your finances, it’s a good idea to check your credit regularly to ensure the details are intact.
PRO TIP: Register with a service like Credit Karma to monitor your credit score and accounts on a regular basis in real time. Their service is truly free, and you can check your credit as often as you’d like with no impact on your score.
3. Don’t Close Old Accounts
Believe it or not, closing inactive accounts can negatively impact your score, as fewer lines of credit aren’t necessarily better. The minute you close an account, your credit availability drops. Also, closing old accounts can cause your credit utilization rate to increase and also shorten your overall credit history—two things you want to avoid in order to maintain a healthy score.
PRO TIP: Keep your oldest accounts open to show your credit history. Even using an old card annually (and then paying it off in full when it’s due) can help it remain active. If you get a letter in the mail that says your account will be closed due to inactivity, be sure to make a purchase to keep it open.
4. Don’t Get Close to Your Credit Limits
One-third of a FICO score is determined by how much you owe on all of your accounts. With revolving credit availability making up 30 percent of an overall score, using too much may imply to some lenders that you’re overextended—even if you have the income to pay it off. Just because you have high limits doesn’t mean you have to maximize them.
PRO TIP: Don’t max out your cards or lines of credit just because you can. If you’re already in that position, then consider a debt consolidation loan to free up lines of credit and work toward paying off what you owe with one simple monthly payment. Making multiple smaller payments throughout the month as you approach your payment deadline can also show commitment to paying down debts and help free up cash flow.
The Impact of a Better Credit Score
Working toward improving your credit score today can have a tremendous impact on your borrowing power tomorrow. A higher credit score can help you increase your chances for approval, receive higher amounts and more competitive rates, and set yourself up for financial success. Whether you’re looking to grow your existing business or start a new venture, improving your credit score is one of the first steps you should consider. Exercising these tools will make you feel more confident when applying for financing.
Improving your credit score takes time. BHG offers a number of loan and credit card solutions to help you get the financing you need today, while putting your financial health on the right track. Contact one of our financing specialists to get started, or complete an application at no cost, commitment or impact to your credit score.