Your credit score has a lot of power of your everyday life. You have probably learned that your credit score matters when you buy a car, rent an apartment, or even apply for a mortgage. Your personal credit score also matters when you are looking for a business loan.
Having a perfect credit score will help you reach your financial dreams, but what if your score is poor? Fortunately, there is a lot that you can do to improve your credit score and bring yourself financial freedom it just takes a lot of patience, persistence, and dedication. Here we will discuss the steps you need to take to build the perfect credit score.
Step 1: Know Your Starting Point
The first step is that you need to know where you are starting from before you can being to improve your credit score. Look at your current credit score and see how far you need to go so that you can achieve the perfect score that you are looking for.
You can check your credit score on your monthly bank statement or by signing on to your online account. Otherwise, you can just search online for a free credit report.
When you know your current credit score, you can compare your number to the categories established by credit reporting companies. A poor credit score is generally below 550 and 600 or above is average.
Step 2: Look for Mistakes
Check your credit reports regularly to see if there are any irregularities or discrepancies in the report. Look to see all the accounts and entries on there and if you find an error, contact the reporting agency as soon as possible to correct it. This process requires you to have a lot persistence but it is worth it to get the errors fixed so that you can improve your credit score.
When you are checking your credit reports make sure that you are checking from all three of the major U.S. reporting agencies which are Experian, TransUnion, and Equifax. All three have different methods for collecting the data that makes up your credit reports so it is not guaranteed that your reports from each agency will look exactly alike.
Step 3: Consider Closing Accounts
If you have bank accounts that you no longer use, consider closing them. Perhaps you opened a line of credit at a store when you were 20 years old. If you were late on payments on that account, it can still be impacting your credit score now.
Multiple open lines of revolving credit, such as store credit cards, tend to suggest erratic credit behavior or a high utilization rate. If you have several old accounts that you do not use, it is worth closing them.
Before you go ahead and close those accounts, do your research and see how they affect your credit score. Accounts that are long standing that have been consistently paid on time and in full can improve your credit score, so you would benefit from keeping your longest running main accounts in good standing.
Step 4: Increase Your Limit
Your credit utilization rate can have a big impact on your credit score. If you are a loyal customer in good standing, talk to your credit card company about raising the limit on your credit. To improve your credit utilization rate, you need to keep operating day-today as if you have the same credit limit than that you did before.
Step 5: Raise Your Income
If building your credit score sufficiently to gain loan approval is your goal, you might need to take on another job or side hustle to pay down your debts. You might not be new to this because most entrepreneurs know all about having supplemental income.
Step 6: Revisit Your Credit Score Regularly
Even if you are following the steps above, raising your credit score does not happen overnight. It will take several months for you to fix your credit report, minimize your expenses, and pay down bad debts. It will take some effort for you to make some progress.
Make sure that you revisit your credit report regularly – at least every six months or so if you plan to apply for a business loan in the near future.
There are no shortcuts to building a perfect credit score. It does take some time, diligence, and commitment for you to make smart financial choices to keep your debts in check.