How to Improve Your Credit
A healthy credit score is key in your financial life. We’ll show you how to make it strong.
Now that you’ve got the scoop on credit reports, you know how important it is to keep your credit healthy. But what happens if your score isn’t what you want it to be? Well, a low credit score can have a serious impact on your life, and I’m not going to sugar coat it for you. You’ll have a tougher time qualifying for loans, insurance, and credit cards. You’ll face higher interest rates and down payments. Even landlords and employers use credit checks, so a low score can impact your life, even if you’re not trying to borrow money.
That’s the bad news, but there’s good news too, because there’s actually a lot you can do to move your score back in the right direction. In this lesson we’ll cover four simple ways to rebuild your credit and raise your score, so let’s get started with Tip 1.
It might sound obvious, but making on-time payments is really important, and this includes things like loans, rent, credit cards, and utility bills. Paying them on time will do two things: it will boost your credit score, and it will keep you from suffering major hits like a default. So stay on top of payments by planning in advance. Create a budget to set aside money and mark your payment dates on a calendar so you don’t miss them. Many companies allow you to set up automatic payments online, and this is a great option, but you have to be careful. If you choose it, always make sure there’s enough money in your account to cover the expense.
Our second tip is to find any outstanding credit card balances and pay them off. Did you make holiday purchases that racked up a big bill? It’s time to take care of that. A good rule of thumb is that when credit card debt goes down, your credit score goes up. So make those bills a priority. Cut down on expenses and use the extra money to pay your balance. Any progress you make helps, especially if you’re able to keep your credit use under 30 percent of your credit line. The amount of credit you use is called your “credit utilization ratio,” and going above 30 percent can hurt your score.
It’s also a good idea to take your credit cards out of rotation, use them less often, or make multiple payments each month to bring down those balances. Finally, remember to keep credit cards open once you’ve paid them off. They’ll boost your available credit, which is great news for both you and your score.
For tip three, take a close look at your credit report. Sometimes there are errors, and you want to scrub those off your record. So request a free report and if you notice any mistakes, notify the credit bureau that produced it. Your credit report will also flag any outstanding payments, and if you see any of those, take care of them as soon as possible.
Our last tip is to stop credit applications until you improve your score. Lenders are wary of new applications if you haven’t paid down your existing debt, and even worse, a rejected application with a hard credit check can actually lower your score further. Until you’ve rebuilt your credit, hold off on applying. Focus instead on using your monthly budget—not credit—to pay for expenses. If you still need to apply for a credit card or loan, look for companies that conduct soft credit checks that won’t affect your score.
Those are our tips, and it may take some time, but if you stick with them, your credit will stop working against you, and start working for you.