4 steps to take your credit rating from ‘bad’ to ‘perfect’

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Understand your score

Many creditors use the popular FICO or VantageScore scoring systems, which combine financial data collected from major credit bureaus, Equifax, Experian, and TransUnion, to determine your score. Each system ranges from a minimum of 300 to a maximum of 850.

A score in the range of 750 to 850 is considered “excellent”, while 700 to 749 is considered “good”, 650 to 700 is “fair” and 300 to 649 is “poor”. At the national level, the the average score is now 704.

Scores are directly related to the financial decisions you make, such as repay your loans or credit card bills in right time.

Make full and on-time payments

It can be difficult for cardholders, especially younger ones, to pay off their credit card debt. Almost one in four people, or 23%, of Millennials (aged 23 to 38) say they have been have a balance for at least a year, according to the financial website CreditCards.com. And more than one in 10 say they have had credit card debt for more than five years.

But pay your balance in full and on time, as well as pay off any other lingering debt, such as student loans, is the key to increasing your credit score.

Details of your payment history, including late or missed payments, are a public record. So if you can’t pay the full balance, pay what you can and look to lower your payments or pay in full in the future.

Experts like David Bach, co-founder of AE Wealth Management, suggest saving a small percentage of each paycheck to pay unpaid bills. They also advise setting up automatic transfers.

“When your paycheck is deposited,” Bach says CNBC do it, “Automatically transfer money from your checking account to a separate money market account or a separate savings account that you won’t touch. You literally want to forget it’s there.”

Yet many young people have to juggle various and even daunting debts, such as bad credit loans and car loans, as well as rising housing costs and daily expenses. All of this can make it difficult to keep track of credit card payments.

Four in ten millennials say daily spending is the number one reason they have a balance, according to CreditCards.com, which suggests “create a brutally honest budget (track each item) and including money for fun and emergencies, “to get out of the red.

Cut or reduce these common expenses and pick up a side crush can also help you pay what you owe.

Know how much you are spending

In addition to making timely payments, keep an eye on your usage rate. This is the ratio of the amount you spent on your credit card to the limit on the card.

The lower the percentage, in general, the better your credit rating. The ideal utilization rate is less than 30% of your available credit.

Keep an eye on your score

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