While raising your credit score will take patience and dedication, the benefits are well worth the effort you put into it.
You’ll find that a higher credit score can help you get into a better apartment, buy the car you want, or get more favorable terms on a home loan.
Some common steps to improve your credit score
Even if you don’t have a strong background in finance, there are some common steps you can take that will help you raise your credit score.
Live Within Your Means
Your first step in raising your credit rating is to make sure you’re following an actionable budget. This means you should be earning more than you’re paying out each month while saving a little something in a savings account or investment account. If you can’t save a little cash from each pay period, you should take that as an indication that you’re not living within your means.
You should look for ways to increase your monthly income, while also looking for expenses that you can cut. This will help you create a better budget for your monthly expenses, so you can avoid relying on credit cards or short-term loans to meet your monthly obligations. Falling into that type of cycle will only put you in a worse situation and further compromise your credit status.
Make Payments on Time
You’ll harm your credit rating in a substantial way with each late or missed payment, so it’s essential to make all of your monthly payments on time. While timely payments to a utility or cell phone service provider won’t positively impact your score, a late payment that’s reported to a credit bureau against you will bring your score down. For this reason, you must make your payments on time. Be sure to submit the payment early enough to ensure it’s received and processed before the deadline. This will help you establish a good repayment history in addition to protecting your current credit score.
If you have certain payments that are recurring, you can set up auto payments with the card or account it is attached to. This way you will never be late on those payments. If you do set this up, make sure it is an amount you are comfortable with automatically being deducted from your account monthly.
Pay Off Your Debt
Your next step in rebuilding your credit is to start repaying your debts with the goal of becoming debt-free. The best method for doing this is called the snowball strategy because it involves paying off your smallest debts first. You should begin paying a little extra on your smallest debt each month while making all of the required minimum payments on your other debts. After that first debt has been fully repaid, you can divert the money you were sending to that creditor to pay off your next smallest debt. By the time you reach your largest debts, you’ll have a substantial amount of disposable income to put towards those creditors each month.
Use Credit to Build Credit
You must maintain good credit to debt ratio, which means you should have more available credit than debt. If you have three cards with a credit limit of $500 on each, you should maintain no more than a total of $600 in debt in total. When you maintain a good ratio, you may even qualify for a home loan or VA loan with bad credit.
If you don’t have credit cards, you can get a secured credit card to help you build better credit. This involves submitting a down payment to get the card, which the lender will use to back your credit limit. If you submit a $200 down payment, you’ll be offered a credit limit of $200 in return. The goal is to make small purchases and repay them to establish a good history. This can help you raise your score in as little as six or eight months.
If most of your spending is occurring on a debit card, you are missing the opportunity to slowly build your credit score with a credit card. As long as you are aware of your card’s credit limit and pay it off monthly, it will not have a negative effect on your credit score. Over time with a new card, your limit should increase which is also a good sign your credit is improving.
Having too many credit cards will negatively affect your credit, but having a few that you stay current on payments for is fine. Additionally, you should request a free copy of your credit report from each of the three major credit reporting bureaus each year. By reviewing your reports, you can identify and report errors on your report. In this way, you’ll ensure mistakes or identity theft aren’t responsible for negatively impacting your credit score.