Whether you’re looking to start your own business, are in the market to buy a house, or need financing for something else, a good credit score can be a huge asset. Unfortunately, on the other hand, a bad credit score or even just a short credit history can be a bit of an obstacle. If your score is on the low side, you might end up having to deal with unfavorable loan terms and high interest rates, if you are able to qualify for a loan at all. The good news is that there are many things you can do to improve that number. Taking the following steps is a good place to start.
1.Use Your Credit
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It can seem counterproductive if you have had trouble with it in the past, but you shouldn’t avoid using your credit completely if you want to build up your score. The trick here is to do so responsibly. Don’t take on so much debt that you are unable to pay it back. Start small by making purchases that you know you have the money for, such as your groceries for the week or an inexpensive item. Then you can pay off your entire credit card bill for the month. Doing this instead of choosing not to use your credit card at all will help increase your percentage of timely payments and will improve your credit standing.
2. Make Your Payments On Time
If you do start using your credit card more, it is important that you make your bill payments on time. This applies to all of your other monthly payments as well. Whether it’s a cellphone bill, loan payments, a mortgage, etc., missing your payments can have a negative impact on your credit. Luckily, you can easily raise your score by paying your bills on time. In some cases, it can be even more helpful to pay them early. If you often have trouble keeping track of when everything is due, you may want to set a reminder to let you know that a payment is coming up. You may have the option to set up automatic payments as well, so you don’t have to worry about missing it.
3. Keep Your Debt to Credit Ratio Low
Another thing that can impact your credit score is your debt-to-credit ratio. This is, as it sounds, how much debt you have acquired in comparison to the amount of available credit you have. The higher your debt, the higher your debt-to-credit ratio will be. While it is generally helpful to use your credit when you are working on building your score, it is not in your favor to use too much of it at once. Instead, it is best to make small purchases that you can pay off quickly. It is recommended that you keep this ratio below 30 percent, but it is preferable to lower it even more if you can. There are a couple of options available to you if you are attempting to do this. The first is simply to pay off a portion of your debt, and the second is to open a new credit account. However, if you do open a new account, you should be mindful not to overuse it and end up back in the same situation.
4. Don’t Close Old Accounts Unless Necessary
While it might seem like a good idea to close some of your accounts if you are having trouble with your credit, this is not always helpful. In fact, it may have the opposite of the desired effect. As mentioned, your debt-to-credit ratio makes up a large portion of your credit, so you want to keep it as low as possible. If you close any of your accounts, the ratio will automatically be higher because you now have access to a smaller amount of credit. Another reason to keep the account open is that the length of your credit history can affect your score as well. The longer your account has been open, the better it is for your credit. For this reason, you may not want to close old accounts even if you have not used them in a while.
5. Watch for Errors
Sometimes, the state of your credit score may not be entirely your fault. There may be errors that are negatively affecting your credit even if you are doing everything right. You should get your credit score and detailed reports at least once a year and take the time to check for errors. If you see anything that looks inaccurate, you should report it as soon as possible. You can file a dispute with each credit bureau to correct any mistakes that you find. This can be done by phone, by mail or online.
Because of the impact it can have on your ability to get a loan or financing, you should stay on top of your credit. If you don’t have much of a credit history, you should work on building it up as soon as you can. Credit cards can sometimes be viewed negatively, as it is easy to get into debt if you are overspending. However, they can be a useful tool for building your credit and improving your score as long as you are using them in a responsible way. It may be a slow process, but you can see a positive change in your credit over time if you use these tips.