Ace the test: How to boost credit scores
Ace the test: How to boost credit scores
Every American knows how critical their credit score is. Or at least, they should.
A high score unlocks a whole host of financial opportunities: Lower car payments, cheaper mortgages, or even approval for that new rental apartment or job youâve been eyeing.
But hereâs something you may not know: Some parts of the country are doing better than others when it comes to boosting credit scores, reports , a consumer fintech banking platform.
The financial site WalletHub recently crunched the data, to find out which city cranked its collective credit up the most in a single year. The winner: St. Louis, with a 3.49% increase compared to last year, resulting in an average score of 652.
Runners-up included Des Moines, Iowa, with a 3.19% jump to 647; and Winston-Salem, N.C., with a 2.28% increase to 628.
Thatâs exactly the kind of positive momentum you want: Even if your credit record is sparse because youâre just starting out in life, or if it is on the low side because of missed payments, you are aiming to boost those scores over time and reap the rewards.
âIf you get to a score like 760 or 780, then youâre going to be getting best interest rates available,â says Liz Weston, a personal finance columnist for the L.A. Times and author of the book âYour Credit Score: How To Improve the 3-Digit Number That Shapes Your Financial Futureâ. âEven if you have bad credit, you can make it better.â
Some states are doing better than others, too. WalletHub did a deep dive into which parts of the country are being most âdiligentâ about their credit: That means whether people are paying their debts on time, the share of the population experiencing foreclosures or bankruptcies, and even whether residents are checking and correcting errors on their credit reports.
The winners: People in Massachusetts, Iowa, Vermont, Alaska, and Hawaiâi.
So whatâs the big secret of these credit-boosting cities and states?
A number of factors go into analyzing credit records, to generate the âFICOâ score (thanks to the firm behind it, Fair Isaac Corp.) or the competing VantageScore, developed by the major credit agencies Equifax, Experian, and TransUnion.
A few key points to consider:
A solid payment history. Obviously, lenders want to see that a borrower is a reliable risk. So pay every bill on time, every time â you donât want to be a few days late, and you definitely donât want to be 30 or 60 days behind. In FICOâs system, that history accounts for .
Mistakes do happen â bills get lost in the mail, due dates slip your mind â so scheduling payments beforehand is a smart strategy, especially when dealing with joint accounts. âSet up autopay to avoid missed payments and assign whoâs tracking what,â says Doug Boneparth, president of Bone Fide Wealth in New York City and co-author (with wife Heather) of the upcoming book âMoney Togetherâ. âClear roles reduce stress and credit slip-ups.â
A reasonable amount owed. Donât max out your credit lines, because that makes lenders nervous. Ideally, you want to keep whatâs called the âcredit utilization ratioâ below 30%. So if you have available credit of $1,000, as an example, keep the amount borrowed below $300.
âThere should be a nice big gap there,â advises Weston. âCredit utilization below 30% is good, below 20% is even better, and below 10% is best.â
Length of credit history. For young adults fresh out of high school or college, establishing credit is an uphill climb, because they just donât have proof of years of reliable debt payments.
One potential solution here: Leveraging the power of being an âauthorized userâ. For teens or young adults, that means being named as a user on parentsâ cards (even if theyâre not actually making purchases). Couples, too, can âadd each other as authorized users on credit cards with strong histories,â says Boneparth. âOne personâs good credit can lift both scores over time.â
Secured credit cards can help. A secured charge card essentially pulls spending power from the balance in your spending account, minimizing your risks of debt. In a nutshell, you canât spend more than what you have in your account, and as you spend, the funds are held in reserve to âpay your billâ at the end of each month. Look for one without a minimum deposit requirement that reports these on-time monthly payments to the three major credit bureaus (TransUnion, Equifax, Experian) each month to help build your credit score.
It can be an effective way to build your credit history and minimize risks of debt.
No credit splurges. Open too many credit lines, too quickly, and lenders get skittish, because it could indicate youâre in some financial trouble. It could also suggest identity theft, if a scammer has gotten hold of your information and is applying for numerous cards in your name. Thatâs why the amount of new credit factors into .
If you donât know what goes exactly into your credit score, this whole process can seem pretty mysterious. But when you do know, then you can get to work on making it better.
Says Weston: âLenders just want to see smart, healthy credit habits.â
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