A low credit score can impact your life in various ways as it makes you seem untrustworthy with money. From making it hard to acquire loans with reasonable interest rates to raising the prices of your bills and determining whether your loan gets approved or not, a bad credit score can bring your life to a standstill. Not to mention, it could also keep you from acquiring your dream home and even influence your relationships. Fortunately, there are tons of tips available to help improve your poor credit score. Here are 8 ways to help you build a good credit score starting today.
1. Monitor your credit report
The first step to improving your credit score is to request a free copy of your credit report and check for any errors. In addition, you should regularly review your credit report for errors like unauthorized accounts and erroneous charges. In particular, ensure to check if there are any incorrect late payments and that the amounts owed for every of your credit account are correct. If you encounter any kind of erroneous charges, you should dispute them with a credit bureau. This is because even the smallest errors or discrepancies can end up hurting your credit score.
2. Make timely payments
Although it might seem like a no-brainer, one of the things that affect your score is your ability to make payments on time and every time. Unfortunately, even a payment that is just a couple of days late can negatively impact your credit history. While it is easy to lose track of your payments when you have to juggle between different bills and expenses, this should not be an excuse. One of the best ways to avoid missing payments is to put up automatic payment reminders for monthly bills such as electricity and rent. But for the case of bills that are not monthly like car insurance, you can set up reminders on your calendar. The longer you make payments on time after being late, the more your score should increase.
3. Keep your credit card balance low
If you have plenty of credit cards, the best thing you can do to improve your credit situation is to reduce the amount you owe. It is easier to reduce credit balances than cleaning up a late or missed payment history. As it turns out, your credit card balance determines 30% of your credit score. Therefore, by reducing what you owe, it can dramatically help to improve your score. However, you will first need to determine the exact amount you owe on each account and then create a payment plan. Basically, it is advisable to start paying off the smallest of your credit balances first before moving on to the next largest.
4. Avoid applying for new credit cards
A big mistake most people make is opening new credit cards that they don’t need at all just to increase their available credit. According to credit experts, this approach tends to backfire and can even lower your credit score. Therefore, the next time you get a tempting offer to open a new line of credit, think twice. It does not make sense to apply for a retail store card you will only use once or twice when you could use an existing card. However, in some cases, opening a new account can increase your credit limit especially if your accounts have low credit limits. So, if you are going to get a new credit account, only do so if it’s really necessary. However, make sure to read the fine print to determine what fees and interest rate are associated with the card.
5. Reduce your credit utilization rate
Another factor that determines your score is your credit utilization rate. Basically, it is the amount of credit you spend compared to what you have available. Therefore, the smaller the amount you spend, the better it is for your credit score. Generally, you should aim at using less than 30% of your available credit if you want to improve your rating. A low credit utilization ration indicates that you are able to manage credit well and lenders will likely be willing to lend you.
6. Increase your credit limit
Raising your credit limit helps reduce your credit utilization rate and improve your credit rating. Therefore, if you have not missed payments, it is recommended to request your credit card company to increase your credit limit. However, it might be tempting to spend more when you raise your credit limit so make sure not to adjust your spending habits. Just stick to using 30% or less of your credit available. With this tip, you should see results within a few months.
7. Don’t close unused credit accounts
The length of time you have had your credit card established with every creditor plays a key role in determining your score. It does not matter whether your account is inactive or not used, you will get rewarded for having a long-term and positive credit history with different creditors. Therefore, in case you have plenty of credit cards you no longer use, you can just put the accounts away rather than closing them. In addition, you should also never close an account with a balance as it can damage your score. Instead, you should leave it open and make an effort to pay off all the debts on time.
8. Negotiate with your creditors
Creditors might be the last people you would probably want to speak to but you should not view them as your enemies. Most creditors are usually willing to understand your financial situation if you openly communicate with them on time. Therefore, rather than defaulting on a loan or skipping various payments, you should just contact your creditor to negotiate your situation. Depending on your situation, some creditors may be willing to reduce monthly minimum payments, interest rates or allow you to skip some monthly payments until you can get back on your feet.
It is important to note that improving your credit score takes time and there is no absolute quick way to fix a low score. Therefore, patience and persistence is something you will need to have while repairing your credit. Just make sure you apply these tips consistently and over time you’ll witness your credit history improve.