Credit scores have a significant impact on your financial life. A low credit score can lead to rejections for housing, loans, insurance, jobs, and more. Even if you do get approved, you may end up paying higher rates or a larger security deposit. But don’t worry, improving your credit score is easier than you think! Follow these 15 steps to boost your credit and qualify for the best deals.
1. Dispute Errors on Your Credit Report
Mistakes happen, and sometimes they end up on your credit report. According to a study by the Federal Trade Commission (FTC), about one in four people have errors on their credit report that can impact their score. Take advantage of your right to one free credit report per year from each of the three major credit bureaus. Visit AnnualCreditReport.com and review your reports. If you spot any errors or negative entries, dispute them. Under federal law, creditors have a limited time to validate your debt or it must be removed.
2. Make Timely Payments
Your payment history is the most influential factor in your credit score, accounting for 35% of it. Make sure to always make your payments on time. Late payments can have a negative effect on your credit for up to seven years. To avoid missing payments, set up automatic payments for the minimum amount on all your debts. By consistently making timely payments, you can avoid late fees, penalty APRs, and negative marks on your credit report.
3. Avoid Unnecessary Credit Inquiries
Every time you apply for credit, your score may drop by three to five points. Although this impact is temporary, it can make a difference in getting approved or declined. Hard credit inquiries stay on your credit report for up to two years, but they only affect your score for 12 months. Be cautious about applying for credit unnecessarily to maintain a healthy score.
4. Apply for a New Credit Card
Believe it or not, opening a new credit card can actually increase your credit score. By increasing your overall credit limit, a new card lowers your credit utilization ratio. This ratio represents the amount of revolving credit you’re using divided by your credit limit. To maintain a good score, keep your utilization ratio below 30%. Applying for a new card can also unlock benefits such as a welcome bonus, intro APR offers, and other perks.
5. Increase Your Credit Card Limit
If you’ve been using your credit responsibly, your bank may approve you for an increase in your credit limit. This increase can reduce your credit utilization ratio. However, be aware that requesting an increase might trigger a hard inquiry, which could temporarily lower your credit score. If possible, request a soft inquiry, which won’t impact your score.
6. Pay Down Your Credit Card Balances
While some believe that carrying a balance can improve their credit score, it’s actually better to owe less. Paying down your credit card balances reduces your credit utilization ratio and improves your score. To maximize the benefits, aim to keep your total utilization of available credit below 30%. If you can reduce your balances below 10%, you’ll receive even greater benefits. Remember that most banks report your balance on the statement closing date, so consider paying your card down to zero (or at least paying extra) before that date.
7. Consolidate Credit Card Debt with a Term Loan
Consolidating your credit card debt with a term loan can significantly reduce your credit utilization ratio. By paying off your credit card balances, you can achieve a utilization ratio of 0%. However, it’s important to avoid closing your credit cards after paying them off. Keeping your accounts open helps maintain a low utilization ratio and a high average age of credit, positively impacting your score.
8. Become an Authorized User
If someone you trust has a credit card with a positive payment history and low credit utilization, ask them to add you as an authorized user. Being an authorized user on an account with a long history of responsible use can increase your credit score. However, be cautious about being added to an account with a history of late payments or high utilization, as it can harm your score.
9. Keep Your Oldest Accounts Open
The average age of accounts influences 15% of your credit score. If you have old accounts in good standing, keeping them open can positively impact your score. On the other hand, consider closing newer accounts to increase your average age of accounts and boost your credit score.
10. Open a Self-Lender Loan
A self-lender loan can help you improve your credit score without actually borrowing any money. These loans report your on-time payments each month to the credit bureaus. For example, signing up for a $300 self-lender loan requires monthly payments (plus fees) for one year. At the end of the year, when you’ve made all the payments on time, you’ll receive a check or direct deposit for $300.
11. Apply for a Secured Loan
Secured loans are easier to obtain than personal loans because they’re secured by an asset such as a CD or investment. When approved for a secured loan, you’ll receive a lump sum of cash and make monthly payments. Paying off the loan on time adds to your payment history and shows responsible credit use.
12. Sign Up for Experian Boost
While regular monthly payments for rent, subscriptions, and utilities aren’t traditionally reported to credit bureaus, Experian Boost changes that. By using Experian Boost, these payments can improve your credit score. Take advantage of this service to enhance your credit profile.
13. Have Rent Payments Reported to Credit Bureaus
If your landlord doesn’t report rent payments to credit bureaus, consider using third-party companies that do. These companies report your rent payments for a monthly fee, helping you build a positive payment history.
14. Switch to an All-Cash Budget
An all-cash budget can prevent you from accumulating more debt and free up cash to reduce your balances. By paying down your balances, your credit utilization ratio and interest charges decrease, improving your credit score.
15. Build Credit with a Debit Card
While many banks don’t report debit card usage to credit bureaus, some FinTech banks offer debit cards that do. These debit cards reward you for responsible use and maintaining a positive balance in your checking account. Extra Debit Card, for example, reports your total monthly purchases to the major credit bureaus, helping you build credit while using your own money.
Having a good credit score is crucial in today’s economy. It affects your ability to get approved for loans, the interest rates you pay, insurance premiums, job applications, and more.
Remember, improving your credit score takes time and persistence. The timeframe to rebuild your credit depends on various factors, such as the severity of the setback and your previous credit score. However, by following these steps consistently, you can improve your credit score faster than you might expect.
So what are you waiting for? Start taking action and watch your credit score soar!
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