Improve your credit score

Your credit score reflects your financial health. It helps lenders understand how financially responsible you are with debtDebt Money that you have borrowed. You must repay the loan, with interest, by a set date.+ read full definition. A good credit score may make it easier to qualify for loans and credit products, such as mortgages and credit cards, and can help you get better interest rates and terms.

5 ways to improve your credit score

1. Pay bills on time

Your payment history is the single most important factor to improving your credit score. In addition to mortgages, credit cards and other loanLoan An agreement to borrow money for a set period of time. You agree to pay back the full amount, plus interest, by a set date.+ read full definition and credit products, your payment history may also include certain accounts like phone bills, utility bills and even rent. Late or missed payments can lower your score.

2. Keep balances low

Your credit utilization ratio is the amount of available credit that you are using at a given time. For example, if you have a credit balance of $4,500 and the total credit limit is $10,000 from all your credit cards, the credit utilization ratio is 45%. A low credit utilization ratio helps improve your credit score. In contrast, a high credit utilization ratio may lower your score.

3. Have a longer credit history

The length of time that you’ve had credit products open can affect your credit score. Generally, a longer credit history can improve your credit score.

4. Avoid unnecessary credit applications

Your credit score can decrease slightly each time you apply for credit, such a new credit card or auto loan. This is also called a “hard inquiry”. The decrease is usually temporary, but some lenders may consider having many credit applications within a short period of time as a warning flag.

5. Have a mix of a credit types

Your credit score may improve if you have different types of credit products, such as a credit card, mortgageMortgage A loan that you get to pay for a home or other property. Often the loan is for 20 years or more. You make a set number of payments for a set amount each year.+ read full definition, and line of creditLine of credit An account that you set up with a financial institution (often a bank) to borrow money. It lets you borrow what you need, when you need it, up to a certain limit.+ read full definition. However, you should only apply for credit when and if you need it.

Avoid the temptation to overspend

Credit can be a useful financial tool, but it must be used responsibly. Avoid overspending by creating a budgetBudget A monthly or yearly estimated plan for spending and saving. You work it out based on your income and expenses.+ read full definition and only borrowing what you can afford to repay within a realistic time frame.

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