We are already aware of the fact that our credit scores are very much important for our financial life. Whenever we seek for a loan, lenders will fetch our credit score to determine creditworthiness, that means whether we’re able to return their money with interest or not. They’ll also check, how much interest they can charge on us, depending on our credit score.
But, have you not realized that in 2016, those three-digit credit scores will get even more importance in our lives. Why so? If we check the benchmark of Federal funds rate for December, we’ll see that the Federal Reserve Board decided to increase it first time after long seven years, and they might do it again in coming days.
The benchmark for the federal funds rate decides the amount (%) of interest every financial lender pays to borrow from one another. If the rate increases, the prime rate will also go higher. Then the lenders will offer lowest rates only to their most creditworthy borrowers.
So, as per the recent federal decision, there are chances of increment in the interest rates. This might be applied to any variable-rate financing that is pre-existing in your credit report, for example - credit cards or HELOC. But, it also indicates that new loans will also get more expensive for borrowers belonging to any category. It’ll especially hurt consumers with low to bad credit. Great money saving offers like 0% down financing or long-term balance transfer credit cards will be harder to get.
So, let’s find out how you can boost your credit score in 2016 to get better opportunities while applying for any kind of financing:
1. Check out the credit report and find errors
The first move you should do to boost your credit score is to check your credit report. Fetch a free copy from – Experian, Equifax, and the TransUnion. Collect your credit report once a year from AnnualCreditReport.com. Make sure every item is correct, and if you find something wrong, report it as soon as possible. Some items to look for:
- Accounts that are unrecognizable.
- Late payments that you didn't make.
- Closed accounts still showing as open.
- Credit limits that are extremely high or too low.
If you find any error, collect any evidence you can gather and inform the credit bureau by sending them a written letter. The bureau may take up to 45 days for investigating the matter, and if the item(s) cannot be verified at that time, they’ll remove the item.
2. Build your credit slowly but steadily
First of all, try to open a new credit card account, but not too many. A new credit card can help you to reduce your credit utilization rate, which is one of the important aspects of credit build-up.
Newer credit cards have less credit limit initially, but as you use it wisely your credit limit and your utilization rate will rise.
Don't add too many credit cards at a time. Applying for too many credit accounts may hamper your score as the credit card companies may think you are experiencing major financial trouble, and they’ll fetch your credit report several times to verify the risk factors. Too much checking of your credit report is not good at all.
3. Make frequent payments
If possible, pay your credit card bill twice in a month. If it’s not possible for you to increase the total amount, you can divide the monthly payment into several parts and pay multiple times in a month. Trust me, it’ll help you score more. Several banks offer payment reminder service through their online banking portals. They’re sending emails or text message to their debtors about the next payment due date. To make your payment timely, you can avail automatic payments service through your lenders and credit card companies. By this way, your monthly payments will be automatically debited from your bank account.
4. Make bigger payments and reduce debts
People with the best credit scores have a tendency to pay their monthly dues at the end of every month. If you fail to do that, make sure you pay more than the usual monthly payment. Avoid paying the minimum balance. Lower payments gradually affect higher credit scores. So, if you have missed monthly payments, then be current and stay safe.
If you are falling behind on your payments, contact the collection agent and pay off the balances. Remember that paying off a collection account will remain on your credit report for seven years.