Taking these steps will make a huge difference to your credit score over time.
- Your past financial actions can affect your credit score for many years.
- There are many steps you can take to improve your credit score over time.
- Paying off your debts, making payments on time, and opening a new line of credit can help your credit score increase.
Good credit is a valuable asset, especially if you plan to borrow money in the future. Lenders use your credit score to assess your risk of default and to decide how much interest to charge you. Those with higher scores pay less than those with lower scores.
Increase your credit score is not always easy and in most cases it takes a few years of hard work to see significant changes. But here are some signs that your score could rise in 2023.
1. You pay all your bills on time
Payment history is the most important factor influencing your credit score, which makes paying bills on time the most important thing you can do if you’re trying to maintain your high score. Even a single late payment can significantly lower your score.
But before you panic, know that being a single day behind on your bill here and there isn’t going to cause trouble with creditors. Most won’t report your late payment to the credit bureaus unless it’s at least 30 days past due. However, you should try to pay before the due date indicated on your invoice if possible.
2. You have paid off your debt
The second most important factor in calculating your credit score is your credit utilization rate. It looks at how much credit you use versus how much you have available. For example, if you have a balance of $2,000 on a credit card with a limit of $10,000, your credit utilization rate is 20%. Ideally, you should keep this below 30% whenever possible. A higher utilization rate tells creditors that you are living beyond your means and may have difficulty repaying borrowed money.
Repay debt, especially high interest credit card debt, will reduce your credit utilization ratio and help increase your credit score. It can also give you a little more wiggle room in your budget each month. If you’ve made progress in paying down your debt in 2022, you can expect to see a higher credit score heading into 2023.
3. You recently opened a new credit card or plan to do so
Opening of a new credit card could also help reduce your credit utilization rate, as it gives you more credit. But whether it actually helps you depends on how you use it. If you accumulate a large balance that you are unable to repay at the end of the month, it could hurt your credit utilization ratio over time.
Opening a new card will also reduce the average age of your credit accounts. This is another factor that determines your credit score, although it is not as important as the rate of credit utilization. Still, a higher average credit account age can help. That’s why it’s best not to close old credit cards unless they charge you a annual subscription.
4. It’s been a while since you had a financial slip-up
Late payments typically stay on your credit report — and therefore affect your credit score — for seven years. Bankruptcies stay on your report for 10 years. If you’ve made any of these mistakes in the past few years, you can expect to have a lower credit score because of them.
But once you’ve passed the seven or ten year mark, they’ll fall off your record and your credit score should go up dramatically, as long as you don’t make those same mistakes again.
It’s impossible to say exactly when or how much your credit score will improve in 2023. It depends on many personal factors. But keeping the tips above in mind can help you make smart decisions in the future so you can keep making progress towards your goal.
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