If you’re struggling to get approved for loans or credit cards and aren’t securing favorable financing rates, you may need to work on improving your credit score. Improving your credit may sound like an intimidating process, but it’s possible to accomplish with the right guidance and determination. There are various ways to obtain good credit. Here’s a quick guide on how to improve your credit score and reap the benefits.
Make Payments On Time
Your payment history is one of the most influential factors in determining your score. When lenders analyze your credit report, they are interested in how reliable you are when it comes to paying bills. This is because your previous performance is indicative of your future performance. You can start to enhance your credit score by paying bills on time. This includes credit card bills, auto loans, rent, utilities, and phone bill. Set up automatic payments or payment reminders to stay on track.
If you have missed any payments, get current as soon as you can. Missed or late payments can negatively impact your score, but they have less of an impact as time goes by. The sooner you get current and remain current, the better.
Pay Off Your Debt
Start the task of paying your debt down instead of moving it around. If you’re struggling to pay back your debt, you may need to speak with your creditors or begin credit counseling. Once you pay down your debt, keep your balances low.
Pay Attention to Your Utilization Ratio
Your credit utilization ratio is a major factor in calculating your credit score. This ratio is determined by adding your balances and dividing it by your limit. To find out your average ratio, add up your statements from the last 12 months and divide the total by 12. It is ideal to have a ratio of 30% or lower. Having a low ratio proves to lenders that you can manage your credit and don’t max out your cards.
Keep Unused Credit Cards Open
If you have credit cards laying around that you aren’t using, you may assume it is best to close those accounts. However, you should keep them open to enhance your utilization ratio. The only exception to this is if you have an unused card that costs you a lot in annual fees.
Be Careful When Applying for New Credit
You may assume that having a mixture of credit is good — and this is true — but do not apply for new credit that you do not actually need. Having unnecessary credit can come back to haunt you. Not only may it tempt you into overspending and accumulating debt, but it can also result in too many inquiries. If you apply for new credit too frequently, you will be the subject of multiple hard inquiries of your credit. Too many of these inquiries can lower your score. Before you apply for any new credit, think about whether you truly need it and research the likelihood of approval. A denied application will reduce your score as well.
Check Your Report and Dispute Any Inaccuracies
You should pull your credit report on a consistent basis. Monitoring your report every few months helps you get an idea of whether you’re improving. Additionally, don’t assume everything on your credit report is correct. Mistakes on your report can unnecessarily impact your score. Dispute anything inaccurate so it can get corrected immediately.
Become an Authorized User
Sometimes, it can be an uphill to establish or re-establish your own credit. One way you can build credit is by signing on as an authorized user on someone else’s card. You can approach someone you trust with a good credit history about this possibility. Consider your parents, other family members or close friends. Be sure that anyone who lets you be an authorized user manages credit responsibly. If you become an authorized user on someone who doesn’t manage credit well, it will only hurt your score even more.
Request a Limit Increase When You Are in Good Standing
When you’ve decreased your utilization rate and paid down debt, you may want to ask your credit card provider for a limit increase. If the provider increases your limit, you will gain a better ratio. Make sure you only ask for an increase when you have a low balance and a good track record.
One of the most important things to remember while improving your credit score is remembering that it’s more of a marathon than a sprint. It may take you some time, especially if you have debts and missed payments to deal with first. But anyone can build good credit with diligence and patience. Do not get discouraged if your credit does not dramatically improve right away. Keep at it and you will reap the rewards.
Photo Credit: Cafe Credit