“If repairing one’s credit is as easy as sending some dispute letters to the credit bureaus then why doesn’t everyone have good credit?” -Tyler Gregory
Whether we like it or not, credit plays a big role in many aspects of our lives. From renting to buying a home or getting that dream job; our credit can help or hurt our lifestyle goals. Many of us aim to increase our scores in order to qualify for loan products and better interest rates, however we tend to focus on the wrong things or “quick fix” options. Today I’m going to share five ways to boost your credit scores. These tips are realistic and help with getting a healthy credit history that will have lenders offering the best products at the lowest rates.Our credit can help or hurt our lifestyle goals Click To Tweet
(1) Make on time payments
I’m sure this has been the most common tip you’ve heard, but it’s for good reason. Thirty-five percent of your credit score is based on payment history, so the first thing to target when trying to boost your score should be this. If you struggle with making payments on time, try doing these things:
- Create a budget to see how much you can realistically afford to pay consistently each month.
- Set up auto payments to credit accounts to ensure you don’t miss a payment.
- Set reminders on your phone at least three days before the bill is due.
(2) Be consistent with how much you pay
When applying for any sort of credit, lenders are looking for consistency and progression. Sporadically paying different amounts each month can signify an inability to manage your current debt load and any future debt you may obtain. Basically, they fear you may not be able to pay them.
A plan to gradually pay more will work in your favor.
(3) Keep credit balances close to or below 30%
Your credit utilization ratio (how much you owe ÷ how much credit is available) plays a big role in your score. Ideally you’d want to use the thirty percent rule as a guideline for your use of credit. For example, if your credit limit is $1,000, you should aim to keep the balance at or below $300. Sometimes it can be overwhelming trying to completely pay off debt, so focusing on getting credit balances to thirty percent will allow you to see little wins. That will keep you motivated and increase your credit! Win-win!
(4) Don’t touch collection accounts (until you’re ready)
Paying an old collection will make the debt current, along with all of its negative history! If you’re not in the position to pay the debt in full, or don’t have a plan to pay if off in a reasonable amount of time, leave it alone. Focus on gaining stability with your current debts, then structure a plan to begin paying off old debts.If you’re not in the position to pay the debt in full, or don’t have a plan to pay if off in a reasonable amount of time, leave it alone. Click To Tweet
(5) Don’t close too many accounts too fast
As you begin to pay off debt, you may be eager to contact your creditors to close out accounts. Be careful not to close too many accounts in a short amount of time. More importantly, be mindful about which accounts you’re closing and why. Closing your oldest credit account can negatively impact your score. Closing an account with a large balance can make your utilization ratio increase, causing your score to drop. So, before contacting your creditor to close, think about if it’s even necessary.
Tip: You can place a freeze on your credit through any of the three credit bureaus for $10. This will prevent your credit from being used for any purposes, and helps prevent identity theft. The freeze can be removed if you need access to credit again i.e. new home, new car, new job, etc.
- Make sure the information on your report is accurate. Dispute any errors directly with the credit bureaus. You can view your reports and submit disputes at annualcreditreport.com.
- Maintain a healthy mix of credit accounts i.e. credit cards, auto loan, etc.
- Using credit cards and paying them in full each month doesn’t always help your score. If your usage exceeds 30% on the statement balance, it could hurt your score.
- Focus on changing current financial behavior.
- Acknowledge that your credit is bad.
- Don’t dwell on what you did in the past.
- Identify what went wrong and adjust.