There are so many reasons you should want a good credit score. A robust credit score qualifies you for better rates on big loans when purchasing a new car or your dream home. You can also get discounts on insurance policies and qualify for housing options that prioritize credit scores for applicants. Last but not least, having a high credit score gives you access to credit cards with low interest rates and handsome rewards programs.
In a nutshell, a good credit score will help to improve your quality of life. However, you don’t just stumble upon a positive credit score. It takes a conscious effort to make sure yours stays healthy. These six methods will give your credit score a boost — or at least prevent it from going any lower.
1. Pay Bills on Time
Late payments will destroy your credit score faster than you can say “show me the money.” Not only do late payments pile up penalties and interest, they tarnish your credit history for a lot longer than you’d like. To be on the safe side, make every effort to get all your payments in on time.
To make things easier on yourself, automate your essential payments. When your loans are paid automatically, it won’t matter whether you forget about them. Just make sure you have sufficient funds in your account, and technology will take care of the rest.
2. Keep Debt to a Minimum
Another thing to keep low is your total debt. For starters, you’ll have less to pay off, which frees up more of your monthly finances. Less debt also means fewer payments to keep track of, thus reducing your risk of making any late payments. Last but not least, a massive load of debt doesn’t look good on your record. It will weigh down your credit score due to sheer volume.
There are instances when debt can’t be avoided. It’s difficult to get around if you’re buying a house or have incurred hefty medical bills. However, you can make lifestyle choices that reduce your debt everywhere else. Don’t max out a credit card just to get a new one. Instead, pay in cash or with a debit card as much as possible to avoid racking up debt in the first place.
3. Review Your Statements Regularly
You’ll get a regular statement from your credit cards and bank, usually monthly, detailing your payment history and outstanding balance. Even if you’re totally on top of your finances, you should glance over these statements each time they arrive. Keep your eyes peeled, and you may come across errors that could hurt your credit score.
If you can spot discrepancies in your statements, you can address them right away. Your name might be misprinted, which would result in your credit-building activities (e.g., timely payments) not being recorded in your credit history. An incorrectly reported late payment will unnecessarily hurt your credit score, and you’ll be none the wiser if you don’t keep track of your statements.
4. Lower Your Credit Utilization
Managing your credit utilization is one of the most effective ways of boosting your credit score. Your credit utilization is the amount of your credit limit you’re currently using. For example, if your credit card has a limit of $5,000, and you have a balance of $500 on it, your credit utilization ratio is at 10%.
To improve your credit score, you want your total credit utilization ratio to be under 30%. You can accomplish this in a number of ways. You can hold multiple cards to increase your available limit, which leads to a lower percentage. If you have old accounts, don’t close them, as doing so will contribute to a lower utilization rate.
You can also pay off a portion of your balance right before the amount is due. This lowers the amount that is reported each month, leading to a lower percentage.
5. Mix Up Your Credit
Credit bureaus take five things into account when calculating your credit score. Some are weighted more heavily than others, but each is a significant factor. The breakdown is as follows:
- 35% payment history
- 30% amount owed
- 15% credit history
- 10% new credit
- 10% credit mix
Using the tips mentioned above, you’ll be making improvements in all of these different categories. After you’ve got a grip on your credit use, take a look at your diversification. Your payment history and amount owed might be solid, but the factors that comprise the remaining 35% offer further opportunities to boost your score.
Credit bureaus want proof that individuals can successfully handle different types of credit, which is where your “credit mix” comes in. You’ll want to demonstrate that you can manage both revolving credit (e.g., credit cards, gas station cards) and installment credit (e.g., student loans, mortgages).
If you’re lacking in the latter category, a credit-builder loan can help, provided you can get a reasonable rate. Such a loan will give you new credit, expand your credit history, and add diversity to your credit pool.
6. Add Rent Payments to Your Report
If you are a renter, you can add your rental payments to your credit report. This is an opportunity to show credit bureaus that you’re able to make recurring payments on time.
This tactic is an excellent solution for those who lack existing credit or are trying to erase a previously bad history. Recent college grads can use their rental payments to show that, despite large student loans, they can make payments responsibly. This will give them a leg up in the early years of their financial life until they become more established.
You can also check to see whether your utility bills can be added to your credit report. Whether you’re a renter or a homeowner, any positive payment history will benefit your credit score. Speak with your utility provider to see whether they’re able to send that information to credit bureaus on your behalf.
As you begin to control your debt and lift up your credit score, more doors of opportunity will open for you. Don’t let a low credit score hold you back from reaching your full potential.