Having an excellent credit score opens up new opportunities for those planning their financial futures. The better the credit score, the better the options for mortgage loans and financing terms. This number also indicates strong financial management habits and a healthy relationship with money.
If improving your credit score is your goal, here are six tips for achieving an excellent rating.
The first step in achieving an excellent credit score is monitoring your credit report. Taking the time to review this document will outline whether there are any mistakes to correct, as well as problem areas to fix.
Look for overarching issues, like frequent late or missed payments. Use those as guidance for correcting your money management skills, setting small, actionable goals based on your findings.
If you find things like collections showing up on your credit report, consider starting the dispute process. By disputing negative items, you can have them removed from your credit report so they’ll no longer affect your credit score.
To dispute negative items, you must first send a registered letter to the creditor asking them to validate the data. They have 30 days to respond with data validation. If they fail to validate the data within that period, you can move to have the negative item removed. This is an effective strategy if there are items on your credit report from the distant past or potentially fraudulent items.
One of the best ways to improve your credit score is to minimize your existing debt ratio. This means increasing the gap between what you’re approved to borrow and what you’ve actually borrowed.
The key to capitalizing on this strategy is to leave those borrowing options open as you pay them off. Feel free to put controls in place to prevent you from using them (i.e., cutting up credit cards).
Late and missed payments have a negative impact on your credit score. Set a goal to make minimum payments on time, setting up automatic transfers if needed. If you’re struggling to make minimum payments due to high debts and limited funds, consider working with a debt consolidation expert to help get back on track.
Automatic payments are ideal for those who miss deadlines due to improper money handling or forgetfulness. Consider setting up an automatic payment that aligns with your payday to make progress without having to think about it.
Improving your debt ratio and making minimum payments will go a long way toward achieving an excellent credit score. However, it’s essential to consider the months and years ahead as it pertains to your financial habits.
Work with a financial advisor to develop long-term financial management strategies to build on the positive habits you’ve put in place. Set some long-term goals for your broader financial picture beyond improving your credit score, such as buying a house, saving for retirement, etc.
Improving your credit score doesn’t happen overnight. Some items will have a statute of limitations, leaving them on your report for up to ten years. Paying down debt takes time, especially at the beginning when you can only make small improvements.
Trust the process, knowing that it gets easier as time goes by. Your credit score may fluctuate as you run into different challenges throughout your life— and that’s ok.
With these six tips, you can progress toward an excellent credit score. Focus on one improvement at a time, making small, effective steps forward. With time and dedication, you’ll achieve an excellent credit score and improve your long-term financial health.