Many business owners have been denied the EIDL loan because they do not meet the 570 minimum credit score. Other government and private sector loans and home mortgages have similar requirements. If you need to improve your credit, either for personal or business reasons, here are five ways to do it.
Factors That Determine Your Credit Score
The three major credit monitoring companies calculate your credit score slightly differently, but five factors go into your credit score. Around 35% of your credit score is made up by your on-time payment history, 30% is from credit utilization, 15% is based on the age of your credit, 10% is based on the type of credit, and 10% is from hard inquiries. Here are five ways to build your credit.
1. Become an Authorized User
Since the age of your credit is one of the factors that determine your score, becoming an authorized user on someone else's account can be beneficial. You don't even need to use a card, simply tapping into a longer credit history (as long as it's good credit) will help improve yours. Several major credit card suppliers, including Capital One and Discover, allow you to transfer that history into an account with them.
2. Keep All Accounts Open
Another way to increase your credit score is to keep your credit cards open. If you no longer wish to use a particular card and it doesn't have an annual fee, don't close it. Keep it open and make a purchase every so often so your creditor doesn't close the card on you. The longer you can keep an account open, the better.
3. Decrease Your Credit Utilization
Decreasing your credit utilization means that you either need to increase your amount of available credit, or decrease the amount of debt you owe. To increase the amount of available credit, apply for a zero-fee credit card that you believe you will qualify for. Be careful not to apply for too many cards at once.
Hard inquiries for private student loans, mortgages, and car loans within the same 30 days generally count as one hard pull. That's not the case with credit cards. Applying for multiple credit cards within a short period can reflect poorly on your score. It's best to wait a few months between applications to balance it out. Increasing your available credit by several thousand dollars decreases your credit utilization and increases your score.
4. Make Your Payments On-Time
Making timely payments is generally the most impactful step you can take since over 30% of your score is determined by your payment history. A best practice is to enroll your card in auto-pay. Even if you can only make the minimum payments, it's best to pay them on time. If you are behind on your payments, make a payment as soon as possible. You can also call your lender and ask if they will remove a late payment from your account.
5. Use Experian Boost
Experian lets you build your credit by linking your phone, utilities, and other monthly expenses to your credit account. If you pay your phone bill or other monthly expenses on time, signing up for Experian Boost can build an important credit history that will result in an increased credit score.
Building Credit Opens Up More Funding Opportunities
If your credit score is preventing you from obtaining a home mortgage or business loan, such as the EIDL loan, it's critical to improve your credit score as soon as you can. By becoming an authorized user, keeping your accounts open, decreasing your credit utilization, making on-time payments, and using Experian Boost, you will be well on your way to increasing your credit and qualify for the loans you need.
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