While there are lots of things you can do to get a better credit score, there are no quick or easy ways to take your score from poor to excellent. You’ll need to do several things to improve your credit score and the specific steps you take depend on what’s hurting your score right now, according to www.thebalance.com.
- Figure out what’s hurting your score
To improve your credit score, you need to understand what’s making your credit score bad.
Before you do anything else, order a copy of your credit report and credit score. You can order your credit report from all three major credit bureaus’ licensed by the Central Bank of Nigeria, or you can start with just one. If you’re looking for a way to reduce the cost (credit reports and scores can cost you some amount).
Look at your credit score. It’s a three-digit number between 300 and 850 if you ordered a FICO or other generic score or between 550 and 990 if you ordered the Vantage Score. In both cases, you should have an explanation of why your credit score is low. For example, high credit utilisation, too few accounts, or recent delinquencies might be affecting your credit score.
Next, review your credit report for the specific accounts with high utilisation or delinquencies. If the negative items are incorrect, get them removed by disputing with the credit bureau or the information furnisher.
- Overcome your negative payment history
If your credit report contains several delinquencies, you’ll need to pay the past due balances and start adding positive payments to your credit report. Open new accounts to start building a positive payment history if all your other accounts are closed. Because of your low score, you might have trouble getting approved for a traditional credit card. Although the use of credit card is not popular in Nigeria, banks are issuing it to most working class people especially banks where their salaries are domiciled
In advanced countries fortunately, there are other options for getting a credit card with bad credit like a secured credit card, retail store card, or a credit builder loan.
Once you get a new account, make all your monthly payments on time, even if it means setting up an automatic payment. The key is to overshadow your negative payment history with positive payments.
- Lower high credit utilisation
A high credit utilisation means the balances on your credit cards and loans are high relative to the credit limit or original loan amount. The fix for a high credit utilisation is fairly simple – pay down those balances. Of course, this may take a lot of time if you don’t have enough money to bring your credit card balances within 10-30 per cent of the credit limit.
You might be able to shuffle your balances around in a way that smooths out utilisation. For example, if one credit card is at 50 per cent utilisation and the other has a zero naira balance, you could transfer part of the balance to even out your utilisation. To pull this off, you need to make sure the new credit card balance is below 30 per cent of the limit. Don’t forget to factor the cost of the balance transfer in your decision. It may be cheaper to leave your balance where it is and just pay it off more aggressively.
Speaking of credit utilisation, if you’re starting over with new credit card accounts, make sure to keep these balances within 10 to 30 per cent of the credit limit. That’s the best level for building a good credit score. Anything above could hurt your credit score.
- Get a mix of credit
Having a mix of current accounts is important because it shows lenders that you have experience with different types of accounts. Credit cards are different from installment loans and if you can handle both of them well, you’re a better credit risk than borrowers who’ve never had one or the other.
If you need an installment loan on your credit report, look to a local bank. Once you’re approved for the loan, the principle from the loan is deposited into an interest-bearing savings account.
You make regular, monthly payments on the loan, not from the money in the savings account, but from your own funds. Your positive payments are reported to the credit bureaus each month. Once the loan is repaid, the savings and the interest are yours. The credit-builder loan is also an option to add accounts to a thin credit profile that has a few or no accounts.
- Make sure you’re using old accounts
The age of your credit history is 15 per cent of your credit history. The easiest way to improve your credit score in this area is to let your current accounts get older. Make sure you use your oldest current account periodically to keep it active. If you let the account go dormant, it won’t be given as much weight in your credit history.
The amount of time since you first established a credit history is just one part of how credit scoring calculations look at your credit age. The average age of all your accounts is another factor. Opening a lot of new accounts can lower your average credit age, so don’t open them unnecessarily. But definitely, open accounts as needed to help your credit score in other areas.
- Let the recent inquiries age
Inquiries are noted on your credit report each time you apply for credit. Unlike other negative information, inquiries only stay on your credit report for two years, but they only affect your credit score for 12 months.
Inquiries are only 10 per cent of your credit score, but theoretically, they have the potential to drop you from a 600 to a 540. After you open a couple of new accounts to rebuild your credit score, let these inquiries age before you think about getting any new accounts.
- Give it some time
You may already be doing all the right things – you’ve opened some new accounts, you’re caught up on delinquencies, you’ve paid down your balances, and you’re paying your bills on time – and still haven’t seen an improvement in your credit score. The best thing to do is wait. It takes time for your credit score to recover from seriously negative information, for inquiries to fall off your credit report, and for positive payment history to outweigh the negative past. Be patient and check your credit score in a few months to see which risk factors are still affecting your score.
Understanding credit score
If you need to boost your credit score, it won’t happen overnight. Credit scores take into account years of past behaviour you can find on your credit report, and not just your present actions.
But there are some steps you can take now to start on the path to better credit, according to www.bankrate.com
Watch those credit card balances
One major factor in your credit score is how much revolving credit you have versus how much you’re actually using. The smaller that percentage is, the better it is for your credit rating.
What you might not know: Even if you pay balances in full every month, you still could have a higher utilisation ratio than you’d expect. That’s because some card issuers use the balance on your statement as the one reported to the bureau. Even if you’re paying balances in full every month, your credit score will still weigh your monthly balances.
Eliminate credit card balances
“A good way to improve your credit score is to eliminate nuisance balances,” says John Ulzheimer, a credit expert. Those are the small balances you have on a number of credit cards.
The reason this strategy can boost your score: One of the items your score considers is just how many of your cards have balances, Ulzheimer says. That’s why charging N100,000 on one card and N300,000 on another instead of using the same card (preferably one with a good interest rate) can hurt your credit score.
The solution to improve your credit score is to gather up all those credit cards with small balances and pay them off, Ulzheimer says. Then select one or two go-to cards that you can use for everything.
“That way, you’re not polluting your credit report with a lot of balances,” he says.
Don’t hint at risk
Sometimes, one of the best ways to improve your credit score is to not do something that could sink it.
Two of the biggies are missing payments and suddenly paying less (or charging more) than you normally do.
Other changes that could scare your card issuer (but not necessarily hurt your credit score): taking cash advances or even using your cards at businesses that could indicate current or future money stress, such as a pawnshop or a divorce attorney, according to experts
You just don’t want to do anything that would indicate risk, experts say.
All rights reserved. This material, and other digital content on this website, may not be reproduced, published, broadcast, rewritten or redistributed in whole or in part without prior express written permission from PUNCH.