A good credit score opens many doors. You have a greater chance of getting approved for low-interest loans, and you can get better car insurance rates. A higher score even makes renting an apartment easier. If you have a bad credit score? Well, that makes it difficult for you to get approved for just about anything.
Poor credit can make people feel helpless. That’s because you have fewer options for things like housing and major purchases. The good news is that there are easy steps you can take to improve your credit. From using a secured credit card to making micropayments, here are seven tips for fixing your credit.
Mistakes are made all the time — even in credit reports. According to the Federal Trade Commission, 5% of U.S. consumers have an error on at least one of their reports. Before you strategize how to improve your score, pull your credit reports to ensure you’re not among that unlucky number.
Most companies will provide users with one free report each year. That said, you’ll need to ask for it. Once you have all your reports, check for errors. Some common ones include accounts with incorrect balances, incorrect credit limits, and incorrect personal information.
If you see errors, contact the credit card company and the company that provided the information. Make sure you report any errors you find as fast as you can. The sooner they’re reported, the sooner they can be fixed, and the sooner your credit score will reflect the correction.
A credit builder card is a solid option for those who don’t have great credit yet. To gain access to a card like this, you likely have to put down a cash deposit. That deposit is usually equivalent to your credit limit. For example, if you put down $500, your credit limit will be $500.
A credit builder card can lessen the risk for the user. If you go over your limit or don’t pay your balance, the card issuer can take that money from your deposit.
Another easy way to improve your credit score is to become an authorized user on someone else’s credit card. To do this, the account holder adds your name to their credit card account. You’ll receive a card in your name that’s still linked to their account. This credit card allows you to make purchases and pay them off, just as you would with your own.
Most credit card issuers report an authorized user’s credit card history. This means that if the account holder has a good payment history, your credit score may improve. Keep in mind that the opposite also applies. If the primary account holder has a poor payment history, your score may dip.
Payment history is a crucial factor in determining your credit score. In fact, 35% of your credit score is made up by your payment history, according to FICO.
If you want to improve your credit score, you need to pay your bills on time. The later your payment, the more interest you accrue. And if your payment is 30 days late, it can be reported to credit bureaus and bring down your score.
A good way to make sure your bills are paid on time is to set up automatic payments. This will keep you from accidentally skipping a due date.
Make sure you have enough money in your checking account to pay the bill, though. If not, an automatic payment will cause an overdraft. The bank may overdraw the account and pay for the bill, but they’ll also charge an overdraft fee. To avoid that, make sure you’re monitoring the money going in and out of your account.
If money is tight, a bill might fall through the cracks. Rather than staying silent, address the problem. If you miss a payment on a credit card, contact your credit card issuer immediately. You might be able to work out a payment plan.
Your credit utilization ratio is another important factor in determining your credit score. It’s the amount you owe divided by your available credit.
To improve your credit score, you want to keep your utilization ratio low. That’s where micropayments come into play. By making multiple payments throughout the month, you keep your card balance down. This, in turn, keeps your utilization ratio low.
According to financial experts, you should aim to keep your ratio under 30%. Making small payments can help you maintain that ratio. They might also be easier on your wallet than paying a large bill once a month.
You may think the best way to improve your credit is to close your accounts. After all, you can’t accumulate debt through annual fees or hiked interest rates if the account isn’t active. While that may be true, closing an account reduces that credit card’s limit to $0, which spikes your utilization ratio.
Your credit utilization ratio is determined by the credit you have available through all of your accounts. If you have a credit card limit of $3,000 on three cards, your overall limit would be $9,000.
Now imagine you owe $2,000 altogether. This would make your credit card utilization ratio about 22%. If you were to close one of those cards, your limit would become $6,000 instead of $9,000. That makes your utilization ratio 33%, which is higher than recommended. So keep those accounts open when you can.
Paying down your credit balance isn’t the only way to improve your utilization ratio. Another way to do it is to increase your credit limit. With a higher limit, it’ll be easier to maintain a lower utilization ratio.
Some credit card issuers will automatically raise your limit periodically. If not, you can make a request online or call your issuer. You also have the option to apply for a new credit card with a higher credit limit.
It’s important to note that increasing your credit limit isn’t a good idea for everyone. If you struggle to spend within your means, you might want to stick with the limit you have. Increasing your limit could lead you to spend more, putting you in worse financial standing.
Opening a single account to increase your credit limit and improve your utilization ratio may be a good idea. Opening a bunch of them is not. Every time you apply for a new credit card, it prompts a hard credit inquiry. This is because the issuer needs to assess how you’ve managed your credit. Unfortunately, a hard inquiry can potentially lower your credit score.
If you’re still tempted to open more than one card, take it slow and apply for one at a time. The last thing you want is several hard inquiries at once.
The road to improved credit is long. It can even begin to seem like an obstacle course. However, improving your score is doable, especially if you know some tricks. These tips will send you on your way to a higher score. The sooner you get started, the sooner you’ll see results.