Get to know your credit. In fact, become best friends.
Whether you’re looking to improve your credit score, or building it from scratch, we’ve got some tips for you. Building and maintaining good credit is no easy task, but often times consumers are overwhelmed by the information they encounter online. A low credit score is not the end of the world. Read that sentence again if you need to.
Remember, you started with no credit and built it once. Believe it or not, even with bad credit, it’s easier to rebuild than it is to build from scratch. The trick is to rebuild correctly, and avoid the temptation of payday loans and high interest credit. These things can help get you through a tough spot, but in the long run can cause massive damage.
With that said, we’ve put together some relatively easy tips to help you get started.
5 Ways to Get an Improved Credit Rating – How to Improve Credit Score?
Reduce Your Overall Card Balance:
If you pay more than the minimum monthly payment on your unsecured debt, you will be improving your credit utilization ratio. Your credit utilization ratio or Balance to Limit Ratio is the second most important factor when calculating your FICO score and accounts for 30% of the total credit. Make sure to keep your available balance less than 30% which is ideal if you want to improve credit rating. This article will shed some more light on the factors making up your FICO score.
Avoid Having Hard Inquiries:
A hard inquiry is usually made when you apply for more credit. The lender first checks your history and credit score to ensure if you are eligible to take on more debt. This hard check can also put a negative score on your credit score by 5 points for each inquiry (Source: FICO). So this may not actually improve your credit score, not having a hard inquiry will not decrease your score either.
Make Payments on Time:
Want to know the easiest way to build your credit? Pay your bills on time. I know, this should be obvious, but you’d be surprised how many Americans pay their bills late. This is true even for those with high income and can make their payments. Paying on time consistently will improve your payment history. This is the largest detriment of your credit score and accounts for 35% of your whole rating. So, your best bet is to make a budget and stick to it. When you get your paycheck, first pay all due bills before spending.
Monitoring Your Credit:
If you want to maintain credit, it is imperative that you learn to monitor it. If you know and understand the variance in your credit score, you’ll be in a better position to keep your credit in the green. This will ultimately help you improve your credit utilization. And don’t worry, getting your own credit history through a credit reporting agency won’t decrease your credit score like hard inquiries do. (Source: FICO)
Once you have access to your credit report, monitoring is pretty straight forward. You want to ensure all data is accurate, that you’re not being held accountable for any debts that aren’t your own, and that your credit hasn’t been compromised. With the increase in identity theft year over year, monitoring your credit is more important now than it ever was.
Managing Your Expenses:
Make sure to reduce your expenses where you can, at least until you have paid off your debt. This is because if you don’t put a top to useless spending, not only will you be out of money to pay your debt, you may also need more credit. And both, not paying on time and getting more credit, will decrease your credit score. So people who need to improve their credit score should consider not applying for more credit unless they absolutely have to. This will come under your recent credit history that accounts for 10% of your FICO score.
Over to You:
So now you have a pretty good idea of how to build and maintain a good credit score. Always try to pay more than the minimum each month, pay on time, avoid hard inquiries, keep a check on your credit and manage your expenses and you will surely improve your credit rating.