3 Tips to Improve your Credit for Big Purchases
By Space Coast Daily // December 16, 2020
Improving your credit score can be an incredibly difficult thing to do. The total amount of debt around the globe reached $188 trillion in 2018, with the average American owing around $90,000 for various things, such as mortgages, student loans, credit cards or personal loans.
Building a good credit score is very important, as without one a person would be unable to be approved to rent an apartment or a home loan to buy the dream house.
One aspect of having a good credit score that is unknown to many people, is that it largely depends on the amount of negative information that exists on your credit record.
Delinquencies for example, which is when you miss payments frequently, can stay on your report for up to 7 years, and bankruptcies, which is when you completely run out of money and assets, between 7-10 years. However, there are things that can be done to improve your credit score.
As mentioned, the negative information on your credit report accounts for a large percentage of the likelihood that big loans or credit for big purchases will be approved.
Whenever you apply for a personal loan, a new house, store credit, a cellular contract and more, the respective company will perform an inquiry into your credit history and make requests for your credit report.
These inquiries within themselves are not a bad thing. What negatively affects your credit score is when the application is unsuccessful and that inquiry remains on your credit record.
In the eyes of a creditor, a string of inquiries into your credit history and credit report looks quite unattractive and can lead to further applications being denied or rejected. It is possible to remove these inquiries.
You would need to write a credit inquiry removal letter; these are usually written when requesting to remove inquiries that are unrecognized or due to unauthorized activity but can be written if the reason is justifiable.
You will need to include why you are writing, the company that performed the inquiry, why you want it removed and finally the actual request. If you find yourself in this situation where this alone doesn’t help, there is a much more in-depth guide on this by Crediful which outlines some of your other options such as hiring professional help.
Removing an inquiry theoretically improves your credit score by 5%, which can make a big difference if the score is not good.
Don’t use credit cards too much
Another simple way to begin improving your credit score, one that is often overlooked, is keeping your credit card usage to a minimum. Credit card utilization, which is the total debt you’ve accumulated versus the total credit limit you have, and is almost as important as your credit history. The perfect percentage for utilization is no more than 10% of credit that is available.
A good way to achieve lower credit card utilization is to ask yourself, “Can I afford to pay this purchase back out of my pocket?” If the answer is no, then it would be a good idea to not use your credit card for that purchase. Another way to do this, albeit slightly risky, is to increase your credit limit.
By doing this, the ratio of debt compared to your limit will increase, meaning it will appear as if your credit card utilization has decreased. Furthermore, until the ratio has increased, avoid applying for a new credit card as this will require an inquiry, which as mentioned is bad if unsuccessful.
Leave your accounts open
It may seem like a good idea to close any unused accounts, whether it be clothing accounts or credit cards, this might actually negatively affect your credit score. The reason for this is because creditors will look at your credit history, and those unused accounts will provide an idea of how long you’ve been using credit.
A longer credit history means an increased likelihood of applications being successful. In terms of how much it affects your success, that would be around 15%.
In addition to this, closing delinquent accounts (accounts for which payments are late or unpaid) won’t help either. This is because that debt will still be there, since closing the account doesn’t erase the debt.
In other words, keeping your accounts open will help your credit score to increase naturally over time, and closing them removes evidence of your credit usage, which is detrimental to the success of applications or big purchases on credit being approved.