Making purchases that require sizable financing can be pretty daunting, whether it’s your first time or your umpteenth. Purchasing a car or a house isn’t quite the same as swiping a debit card at your favorite fast-food restaurant, or signing up for a mobile plan. Financing involves credit checks, down payments, and a pile of paperwork that can take hours to sort through and sign. As such, your credit score is one of the most important parts of the equation to making a big purchase. A poor credit score can derail your plan before you even get started. In this post, we will discuss ways that you can raise your credit score.
What is a credit score?
According to Investopedia.com a credit score represents a numeric indication of your creditworthiness which lenders utilize to evaluate your likelihood of repaying your debt. A credit score is a number that is between 300 – 850. The higher your score, the better the opportunity is for you to get a credit card or loan with good interest rates.
Essentially, your credit score consists of five categories – payment history, the length of credit history, amounts owed, types of credit used, and new credit.
Ever since my credit score increased by 168 points in 9 months, I’ve been addicted and intrigued to know where I stand and what I need to work on. With the insights I extracted from this effort, I’ll share a few straightforward tips you can implement to increase your credit score if you don’t have the best credit score yet.
But before that, remember that nothing can boost your credit score faster than repaying your bills timely or using the card rationally. When trying to advise people on improving their credit score, I point them towards these two fundamental points as they are things that are relatively easy to change and of course, a pretty good start to the journey ahead.
With that said, below, I’ll share a few practical tips on how you can raise your credit score.
Keep Track of Your Credit Report and Credit Score
You can always request 3 FREE copies of your credit report from the three major credit bureaus – Transunion, Experian, and Equifax. Each credit bureau offers you your free credit report once a year. Advisably, get your report from more than one bureau as there could be discrepancies. Carefully vet each report. If you see any inaccuracies, contact the credit company immediately.
Besides requesting your credit report once a year, knowing your credit score consistently beforeķ applying for financing is one of the best steps you can take to be prepared. Consider using a free credit score service to avoid surprises when you start shopping for cars or houses. Getting your score estimate from a free service doesn’t affect your score like requesting a new line of credit does, so keep track of your score regularly while you focus on improving it.
Another way to keep track of your credit is via Credit Sesame. I’ve been using the website for a while and It provides you with a credit score and so much more. It differs from Experian, Transunion, and Equifax in the fact that it provides recommendations. For example, it shows you credit cards that you could qualify for that has a low APR. It also shows you an overview of your total debt. It allows you to see everything in one place. For more info, sign up here. (It’s free.)
Timely Payments of Existing Debts
Did you know that the average American has more than $5,000 in credit card debt? Depending on how large your credit line is, how much you still owe on your cards could negatively impact your score. Experts generally agree that you should owe less than 30% of your available credit every month. That means if your credit line tops out at $1,000, you should owe less than $300 when your bill cycles. Essentially, the amount of credit that you owe is 30% of your credit score. Your debt to credit ratio is one of the things lenders look at when deciding if they want to offer you more credit or not. Credit companies recommend your debt to credit ratio by 30% or lower. I was at 44%. But with a little bit of work ahead, it’s been better so far.
Again, missing a payment by more than 30 days is one of the quickest ways to see your credit score take a nosedive. You must make every payment on time to avoid late fees and a negative ding to your credit score. If you have missed any payments, get caught up with them and pay the outstanding fees and interest as soon as possible. You can avoid missing payments by scheduling automatic drafts from your bank.
Pay down your debt with some of the side hustles listed in this post.
Pay in Full Monthly
Another thing that will help you when you are getting your credit score in order is to pay your credit card in full each month. I’m not going to lie. For some people, this one will not be easy. Some people tend to use their credit cards for all their shopping and only make the minimum payment each month. If you want your score to get higher, you have to develop a little bit of discipline and watch your credit card usage. If you have a high credit card balance, you should do whatever you have to to pay it down. Once it’s at zero, use it wisely and pay it in full each month.
Continue to Use Your Credit (Sometimes)
Though keeping your credit usage below 30% is ideal, paying your credit cards to a $0 balance every month can also be a bad idea. According to one expert, a $0 balance can actually look like you aren’t using the card at all to some credit reporting agencies. You can also run the risk of having your account closed for inactivity if you stop using a card entirely. This can negatively impact your credit score since the average age of your accounts factors into your score. Credit agencies like to see a long history of healthy credit use, and not using your cards doesn’t help build that history.
Avoid Requesting Too Much New Credit
Opening new accounts can help you quickly improve your score if you have no credit history. However, new accounts can be problematic if you already have existing credit card debt. Applying for multiple new lines of credit shortly before making a large purchase can be a red flag for financing companies. Opening new lines also often require a hard pull of your credit history, which can lower your score for a short time.
The next tip to help you raise your credit score is to negotiate payments with your creditors. We are all humans. Sometimes you may not be able to pay a bill or you may forget one. Instead of ignoring it you should contact your creditors and let them know your situation. You never know what can happen. You may be able to get the late fee waived or possibly negotiate a lower payment. You will never know what may happen until you contact them.
Apply For New Credit Accounts As Needed
Try not to open many credit accounts in hopes of improving your credit scores. It doesn’t work that way. It would only harm your credit scores in a whole lot of ways. You become tempted to overspend, and that would increase your debts. Only apply for new credit accounts when it is needed and necessary. Try not to apply for too much new credit. It can result in multiple inquiries. The only benefit of opening a new credit card is that your credit limit gets increased. However, it will also create a hard inquiry on your credit report. There are two types of inquiries: soft and hard inquiries. The soft inquiries include checks done by financial institutions and credit card companies you have business with, checking your credit, or permitting an employer to check your credit. It doesn’t reduce or even affect your credit score in any way.
On the other hand, hard inquiries occur when you apply for too many new credit cards, an auto loan, a mortgage, or any other form of credit. Multiple hard inquiries can reduce your credit score. It will affect your credit score negatively, and the effect stays for over two years.
Keep Unused Credit Cards Open
The older your credit age is, the more appealing you will appear to lenders. Not closing unused credit cards is a smart move. As long as they are not costing you any money, keep them open. Closing an account may reduce your credit score. It doesn’t even close off your debts. So, you end up owing the same amount but with fewer credit accounts, which may affect your credit scores. But if you don’t close down the unused credit cards, the credit history remains on your credit report, which lenders will find credible. This is a good hack to use when you’re looking to improve your credit score.
Use Credit Monitoring to Track Your Progress
An easy way to track your credit score progress is by using credit monitoring services. It would help you know how your credit score changes. These services monitor the changes in your credit reports, many of which are free services. They give you access to at least one of your credit reports from Experian, TransUnion, or Equifax’s monthly updates. They also help you prevent fraud and identity theft.
Contact Your Creditors
You’d be surprised at the help your creditors can offer you when you contact them. If you have any issues, talk to your credit card issuer. Many of them have established programs that will reduce your monthly payment or interest rates until you are more financially capable. They may even offer a mutual agreement beneficial to both parties. These acts will help you pay your debts and raise your credit scores.
Taking steps to raise your credit score is a good idea whether you’re planning on making a big purchase in a week, a month or a year. The sooner you put some of these steps in action, the better prepared you’ll be when you’re ready to sign on the dotted line for that dream car.