The do’s and dont’s of credit may seem complicated, but they are simple to manage once you get the hang of it. All it takes is time, consistency, and patience. Your credit score can affect the quality of your financial life, including your ability to make major purchases such as buying a home or getting approved for a credit card. Your three-digit score can also put a dent in your buying power in the form of higher interest rates and lower credit limits.
Generally, higher credit scores tell lenders that you have a history of paying your bills on time, while lower scores affect their decision to lend you money or extend credit to you. So, where do you start if you need to improve your credit score standing? Try these 10 tips:
1. Create a Budget
How you manage your expenses is directly connected to your credit score. A well-planned budget will help you keep track of your spending and avoid overspending so you can achieve your financial goals. When you budget carefully, you’ll have a better chance of not missing bill payments, which will have a positive impact on your credit score and overall financial health.
2. Set Up Automatic Bill Payments
Nothing will affect your credit score progress faster than missing payments. Your payment history is a critical component of your credit score. A missed payment, especially if it’s 30, 60, or 90 days late, can lower your score. Setting up automatic bill payments will ensure you pay your bills on time, every time.
3. Pay Down Balances
Paying your credit card balances will lower your credit utilization ratio – the amount of total credit you have access to and can use vs. the amount of credit you have used. Reducing your utilization, which should typically be less than 30% across all of your available credit, is a quick way to improve your credit score.
4. Get a Secured Credit Card
Secured credit cards can help you establish and build your credit score. These cards require providing a security deposit, usually the same amount as the card’s credit limit. Using a secured card to make small purchases, like gas, for instance, and paying it in full each month can help increase your score over time.
5. Dispute Credit Report Errors
No one is perfect, and mistakes happen, even on your credit report. Make it a habit to check your credit report regularly so you can flag inaccurate or suspicious information. If you discover something that doesn’t look right, contact the credit bureau and open a dispute.
6. Keep Old Accounts Open
Paying off debt is an accomplishment, but don’t be quick to close accounts with zero balances. Closing accounts can negatively impact your balance to credit limit ratios, your utilization, so it’s best to keep old accounts open.
7. Limit New Lines of Credit
It may seem strange, but new credit can harm your credit score. When you apply for credit, you receive what’s known as a hard inquiry on your credit file. Hard inquiries stay on your report for two years as an official “ask” for credit, so it’s key to reduce the number of hard inquiries on your credit report.
8. Limit Loan Applications to a Short Period
Too many credit inquiries over a short time can indicate that you are in a bad financial situation or you are being declined credit. By limiting loan applications to a short time frame, you can reduce your number of hard inquiries and improve your score.
9. Pay Off Credit Card Balances Every Month
Paying your credit card balance in full every month shows lenders that you are a responsible borrower, which can positively affect your credit score.
10. Track Your Credit Score
Checking your credit score will not impact it at all. Tracking your score will help you see how your daily and monthly debt management behaviors (paying bills on time, for example) make your credit score go up or down, helping you achieve your credit and financial goals faster.
Improving your credit score won’t happen overnight, but it will happen if you take action and stay on top of it. To learn more about debt management and how to keep your credit healthy, schedule a free consultation.