The FICO credit scoring model is by far the most widely used model in the United States, and while the exact formula is a well-kept secret, we know the basic categories and their weightings. This should be enough for us to come up with some strategies that can increase your credit score. Here are four things you can put into practice in 2024.
1. Your loans will be paid
There is no magic formula when it comes to the most powerful ways to improve your credit score. The best way to achieve a higher FICO® Score is to pay your bills on time and reduce the amounts you owe. These two categories make up 35% and 30% of the FICO scoring formula, respectively.
In other words, if you have existing loans such as a mortgage, car loan or personal loan, simply paying them on time every month throughout 2024 can automatically increase your credit score. The same idea applies if you have credit card debt and are paying it off gradually in 2024.
2. You will consolidate your credit card debt
You don’t need to pay off a large portion of your credit card debt in 2024 to improve your credit score. The simple act of reinforcement can have a big impact.
Let’s say you use a personal loan to consolidate your existing debts. First, installment loans are generally evaluated more favorably based on the FICO scoring formula. Plus, you’ll have a zero balance on all your credit cards after consolidation, and a lower utilization percentage on revolving credit accounts can definitely boost your score.
On the other hand, let’s say you open another credit card with a 0% intro APR balance transfer offer, which is another important method of credit card consolidation. Just like with personal loans, all of your existing accounts will have a $0 balance and your overall revolving credit utilization will be lower than before.
3. You are not applying for a new loan
Two other categories of the FICO scoring formula that I haven’t mentioned yet are new credit and the length of your credit history, which totals 25% of your FICO® Score.
Applying for and opening new credit accounts can hurt your score in these categories. The “Length of credit history” category takes into account time-based factors, such as the ages of your individual accounts and the average age of all your accounts. Obviously, opening new accounts will cause some metrics to move in the wrong direction.
The new credit category takes into account newly opened accounts, but also credit inquiries; that is, when you apply for credit, regardless of whether you open a new account or not. Credit inquiries from the last 12 months are taken into account and may have a negative impact on your score.
if you the one which… Apply for any new loans and do not open a new account in 2024; This can be a positive catalyst for your score.
4. You have higher credit limits
This is an unconventional way to improve your credit score. The “amounts you owe” category takes into account – among other things – your use of revolving credit, and it’s often better to use a lower percentage of your available credit.
The obvious way to improve this metric is to pay off some of your credit card debt. But there is another way; Requesting higher credit limits on your existing credit cards.
Think of it this way. If you owe $1,000 on a credit card with a $4,000 limit, you’re using 25% of your available credit. If your credit card limit is increased to $5,000, you’re only using 20% of it, even though your balance is still the same. Many credit card issuers will increase your limit without making a credit inquiry, and the worst they can do is say no.
How to take your credit score to the next level?
This is not a comprehensive list of ways to improve your credit score, and of course, not all of them will work for everyone. For example, if you plan to buy a house in 2024, you cannot stick to the “do not apply for a new loan” part.
However, the most important takeaway is that although the FICO scoring system is quite complex, there are many different ways you can potentially improve your score if you know how it works. Which of these strategies can you implement to improve your credit score in 2024?
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