1. Pay your Bills on Time
The most important thing you can do to improve your credit score is to pay your bills on time. Paying your bills on time constitutes 35% of the calculation for your credit score. If it were that simple though, you wouldn’t be reading this article. Life happens, and everyone has their reasons for not being able to always make their payments on time. You may have lost your job, or accidentally spent too much on a gift for a loved one, or you could have simply forgotten.
If you are consistently forgetting, there are a few actions you can make to avoid those dreaded late fees that not only drain your bank account, but also lower your credit score. Every credit card issuer allows you to set up an automatic payment plan. You can set the payment to be the minimum or the full balance, allowing you to find a balance between timing and how much you pay. Though you should try to avoid overpaying, don’t worry about it because your credit card company will simply apply the excess to your next statement, or if you request it they will send it back to you as a check.
The solution to not having enough money to make your payments is a bit more difficult, but there are a few steps you can take to make sure you improve your situation. Step number one: create a daily/weekly/monthly budget. If you are not budgeting and tracking your expenses, you need to be. It is one of the main keys to financial independence and success. Looking back at your previous statements will allow you to make important observations to change your behavior. Tracking is incredibly easy with tools such as www.Mint.com, which allows you to plan your budget and track everything easily in one simple package! To give you an example of the power of budgeting, I looked at my expenses and realized I was spending 20% of my income on eating out, which is a good portion of my budget. Once I started taking home cooked meals to work though, I was saving hundreds of dollars per month… and the food was pretty good too!
2. Pay Down Credit Card Balances
The next best thing you can do to improve your credit score is to keep your credit card balances as low as possible. Your debt-to-available credit constitutes almost 30% of the calculations in your credit score. A good general guideline to follow is to keep your outstanding credit balances below one third of your available credit limit.
3. Use your cards
How can you expect a credit card company to know you are good with credit if you don’t use it? The answer is you can’t. In order for these companies to know you are good with credit, you have to use it! This doesn’t mean that you should go out and start buying everything you see to raise your credit score. What you should do though, is spend it wisely on things like gas or groceries and pay your bill on time when you receive it.
Make sure that you use all of your credit cards in order to make sure none of them become inactive. One way to prevent this is to set up an automatic monthly payment on the card with a service like Netflix or Spotify connected to them.
4. Keep old credit card accounts open
One of the biggest trade secrets we can tell you to preserve your credit score is that you need to keep your old credit cards open! This doesn’t raise your score, but it will prevent it from going any lower. Ten percent of the calculation for your credit score is based on your credit history, which includes the opening and closing of accounts. This is also why your credit score will not be perfect if you recently started using credit cards – even if you have never done anything wrong!
5. Don’t apply for too much new credit at one time
Now you may be thinking that if closing credit card accounts makes your score go down, then opening them must help improve your credit score. Hold your horses before you make a big mistake! When you apply for a bunch of new credit, your credit score will take a ding because you are displaying similar behavior to incredibly desperate people looking to pay their bills with bank loans and credit cards. To them, it’s a sure sign that you will never pay them back, so if you want to prevent the untimely death of your credit score, please pay attention to how often you apply for new credit and space out your applications.
The only exception to this rule is when you are shopping around for the best interest rate offer on the same loan. If you have several similar credit pulls (this is industry lingo – it means when someone checks your credit score) on your credit report, FICO will group all those pulls together as one application, meaning your credit score will fluctuate less.
We hope this article has been both informative and helpful! If you start to incorporate all or even some of this advice into your daily routine, your credit score will begin to rise. Nothing happens immediately, and it may fluctuate as you begin to make changes to your lifestyle, but if you are patient it will rise. Once your credit score rises, you’ll be able to take advantage of much better rates and use your new good habits to achieve your financial goals.