There are plenty of ways to improve your credit score and become a trustworthy borrower who uses credit responsibly. Eliminate outstanding balances, pay your bills on time, and never go over your limit to boost your score.
1. Eliminate Card Balances
This is the first step to make, and there are different ways to go about this. If you have high-interest cards, you may want to shop around for balance transfer cards with low promotional rates. In fact, some banks offer zero interest over a period of 6 to 12 months. Another way to eliminate outstanding balances is to focus on one of your cards first and pay as much as you can. Financial experts advice to start with the lowest balance, i.e. set a short-term goal that brings quick results. Meanwhile you can pay the minimum toward your other balances. The next step is to lower your utilization rate because this is what brings your score down. Simply divide the balance by the credit limit for each card to find the utilization rate. Then pick the card with the highest utilization rate and pay as much as you can to reduce the outstanding balance.
2. Pay Bills on Time – Try to Pay Your Bills in Full by the Due Date
Paying your bills on time is yet another way to boost your score because delinquent bills usually show on your report. In fact, if you are behind with your payments, including phone, electricity, gas, or other bills, it is likely that your provider contacts a collection agency. Your credit score will suffer because information about late payments and delinquent bills is forwarded to the credit bureaus.
3. Reduce the Number of Credit Applications You Make
A large number of credit applications can affect your credit score because lenders usually pull your report to see whether you are able to manage debt responsibly. They will do this regardless of whether you apply for a personal loan, car loan, credit card, or anything else. The problem here is that the number of new applications is one factor that affects your score. In fact, applications make 10 percent of your score. A major mistake to avoid is to apply with multiple providers over a short period of time. This will cost you more score points than applying for credit with one lender. Wait for some time before you apply with another provider unless you are desperate for credit. If this is the case, yes, your score may suffer, but there are other factors that lenders take into account (like whether you make regular payments and if you have a good or tarnished score). Plus your score is based on other factors such as the length of your history, your utilization rate and credit mix (vehicle and personal loans, mortgages, lines of credit and credit cards, etc.)
And even if you credit score does not suffer due to multiple applications, providers may turn your application down. This is because you applied for multiple cards at the same time.
4. Make Sure You Have a Credit history
If you don’t have credit history, it is difficult for lenders to determine whether you are a trustworthy customer. There are several ways to start building a credit history, and one is to apply for a card with a small limit. You can also use a department store card to this end, but remember that department stores usually offer higher than average rates. Another option is to apply for a small loan with your local union or bank, especially if you are a regular customer. If you have a savings or checking account with a local bank, it is a good idea to visit them first. Regardless of whether you apply for a credit card or a personal loan, make sure that you make payments on time. Late payments are one of the reasons to have a fair or poor credit score.
5. Don’t Go over the Credit Limit on Your Credit Card
This is a no-no if you have a tarnished credit score. Your score will be affected even more if you go over your limit and do this regularly. The limit on a credit card is the amount you are allowed to charge when making payments. You are free to opt out so that you don’t go over the limit by mistake. In this case, your card will be declined when you try to make a transaction. While this can be embarrassing, your credit score is unlikely to suffer. What is more, you will save on over the limit fees that some providers charge. Over the limit fees are often equal to the amount by which you exceeded the limit. If you go over by $20, for instance, the fee will be $20.
What Else You Can Do
There are other ways to boost your credit score and surprisingly, one thing to do is to leave debt on your report. Bad debt will be removed in several years anyway. Good debt, however, shows that you are capable of managing credit in a responsible manner. And the longer your credit history, the better – leave good accounts on your credit report for as long as possible. If you have credit cards with a solid record of payment, it is a bad idea to close them. Another way to boost your credit score is to contact your financial institution and ask them to erase debt. If you have a good reason, say you were unemployed over the last couple of months, your bank may be willing to do this for you. Finally, it pays to request a free copy of your report and check for any errors and omissions that affect your credit score.