Most of us have had the experience of: sitting in a car dealership, lending institution or furniture showroom, ready to make a purchase, but waiting for your credit check to come through. Even if you are certain you’ve managed your credit well, the wait is still nerve-wracking. What if there is an error? What if something has changed that I don’t know about? If you have had credit struggles, the wait is even worse. Not only can a low credit score result in denial or paying a much higher interest rate, but hearing the news across a sales desk can be just plain mortifying. ⇒ Will Credit Limit Increase Hurt Score?
So how do you begin to improve your credit rating? The simple answer is to build or rebuild your credit in a positive direction. It may sound easy, but it takes perseverance and time. Anyone offering a “quick-fix” is not giving you the full picture. While this task will take some time, it is entirely doable and lots of people have succeeded. ⇒ Increase Credit Limit
Your credit score is primarily based on your payment history, amounts you currently owe, length of your credit history, how much new credit you’ve applied for recently, and the types of credit you have. By far, the most important categories are payment history and amounts owed – they account for 65% of your score.
Improving your credit looks different for each individual, but here is an infographic from myfico.com and 5 tips from us to help you move your credit score in the right direction. ⇒ 6 things to know before requesting a credit-line increase
Here are 5 tips to building your credit:
Work on your largest debts with the highest interest rates first. Paying these down will make a big impact on your credit utilization and, better yet, will likely save you the most in interest payments. Pay attention to the difference between the credit limit and how much you owe. The percentage of use is an important detail. It is better to owe $1,000 on a card with a $10,000 limit (10% utilization) than to owe $1,000 on a card with a $2,000 limit (50% utilization). Keep that in mind as you prioritize your payments.
Always make payments on time. This takes some organization, but it is well worth it. If your payment is late, it can drop your score quite significantly. One strategy to stay on top of this is by taking advantage of automatic payments to ensure that the minimum is always covered. When you are in a position to add more than the minimum, even better.
If you do forget to pay on time, don’t lose hope. Many times you can keep the missed payment from appearing on your credit report by calling your creditor and making arrangements to get caught up right away. Creditors must wait 30 days before reporting a delinquent payment to the credit agencies, and most will help you avoid that if they can, but they won’t do this without communication.
Don’t get rid of your old accounts (or open a lot of new ones). Many people think that they are helping their credit history by closing old accounts, but this just isn’t true. Older accounts with no balance or a low one, demonstrate that you can manage your credit responsibly over time.
Learn to minimize your credit purchases. A wallet full of credit cards may feel exciting on shopping day, but if you can’t pay the bills when they arrive, that fun goes out the window. When possible, shop like you don’t have credit available. If you can’t afford it today, perhaps it is something best left on the shelf. A credit card is nice to have handy for a true emergency, but it’s not designed for managing your daily finances unless it’s completely paid off each month.
When your credit rating improves, your expenses will decrease. You will see lower interest rates on credit cards and even your auto insurance company will charge you less. Taking care to fix and maintain a high credit score is well worth the time and the organization that you will invest.
If you don’t know where your credit stands, we recommend signing up for a free Credit Karma account and checking your credit report to learn more about your current credit health and more ways to improve it.