Do you get excited when it’s time to check your credit score?
Does your stomach turn because you know you’ve maxed out a few of your credit cards?
If you have a bad credit score don’t worry because you’re not alone. With some dedication and practicing good money habits, you’ll be on your way to an excellent score.
I’ve had the experience of having a great credit score, and also dropping it near the 500 range. Although I a few years back I wasn’t good at managing my money I did understand the core factors to obtain excellent credit.
Below are 5 tips you can use to start improving your credit score. Realistically, it may take months or even years to improve your credit score. It depends on many different factors, but remember to take it one step at a time.
1. Pay Balances
This goes without saying, but the first thing you need to do is to start paying any outstanding balances. Besides your credit card, you’ll have to be certain that you don’t have any medical bills or other balances that are outstanding.
You can start by using companies like Credit Karma or Credit Sesame. These are both free applications. Once you’ve created an account and have entered all of your information you’ll be able to view all of your outstanding debt.
Both applications don’t do hard inquiries when you view your credit score. I’ve used Credit Karma multiple times throughout a single week and didn’t see any points drop from my credit score.
2. Credit Limit
It’s easy to spend money with your credit card, and even easier to go over your credit limit. Only because you’re not maxing out your credit card doesn’t mean that you’re not damaging your credit score. Whatever your credit limit makes sure that you don’t use more than 20%.
For example, if you have a credit card with a $1000 credit limit, don’t use more than $200.
If you do find yourself using more than 20% work on reducing your outstanding balances.
3. Pay Bills
Have you been late with any payments recently?
If you answered yes, then this is costing you some credit score points. Make sure that you pay all your bills on time.
This can be challenging especially with all the other day-to-day tasks you might have. Something to consider is to start scheduling your payments. You can do this via your merchant’s website, or through your bank’s online bill pay feature.
There’s no correct way to do this as long as your bills get paid on time.
4. Fixing Errors
Your credit report contains a lot of information such as where you live if you have been sued, or filed bankruptcy. Make sure that all your information is accurate.
To get your free credit report go to sites like Credit Karma. You can check this as often as you’d like, but once a year may be enough.
So check your credit report for free and avoid incorrect information stop you from obtaining an excellent credit score.
5. Credit Cards
Do you have 5 or 10 credit cards?
I hope that you’re not using all of them! If this is the case then consider putting them away forever, but just don’t close them.
Well for starters your credit score will most likely drop a few points in the future.
This is because you overall credit line decreases. For example, if you have 5 credit cards with a $1,000 credit limit you would have $5,000 of available credit. However, after closing your credit card your available credit will be at $4,000.
Having a lower available credit can affect your utilization percentage.
In the previous example if you carried a credit balance of $1,500 your credit utilization would be at 40%. Before closing your credit card, however, your credit utilization would have been close to 30%.
One other factor to consider is your credit history. Avoid closing credit cards with the longest credit history. You may need to close your credit card if you pay annual fees or high interest.
Many times we are tempted to think that some magic formula or strategy can skyrocket our credit scores. The truth is that it takes time. I don’t know everything there is to know about credit scores, but I did manage to increase mine in the high 700s.
At the time when my credit score was low, I really didn’t care since I wasn’t purchasing anything big. I did, however, want to prepare myself for the future. Luckily, I’ve worked in the financial industry for many years and this gave me a perspective that most people don’t have.
For example, I witnessed people who paid the minimum on their credit card balances that were over $2,000. On the flip side, I’ve met people who paid down all their purchases in full each month, and viewed this on a daily basis.
While I couldn’t see people’s credit scores I quickly realized who had a higher score. Having a great credit score is only 1 trait that the wealthy have. There’s no point in improving your credit score if you can’t manage your money.
Remember to not use more than 20% of your available credit, make your payments on-time, and maintain your credit cards with a long history. Focus on being frugal and spending your money where it really counts. This doesn’t mean that you’ll be a “cheap” person, but rather someone that spends each dollar wisely.
If I was able to increase my credit score I know that you’re more than capable of doing the same. I challenge you to not only increase your credit score but to start creating better money habits.