There are many good reasons to improve your credit score. You can get a loan or mortgage, as well as lower home and auto insurance costs. You can also get better terms and rates on financing purchases. You may be able to access additional benefits and perks with credit cards that are specifically targeted at people with good credit.
Some low-income households in the United States saw their credit scores rise for the first year after the pandemic. There could have been many reasons. Congress authorized an influx in pandemic relief cash. Many people also had lower expenses due to the abrupt stop in commuting and the closing of businesses that kept them at home. However, the increasing fear of a recession could undo some of these gains. These financial stressors can cause further damage to your credit score if you have been laid off as many people in the tech sector have been.
If your credit score is low or you want to improve your credit score. you should first understand credit reporting and credit scores. Next, take a look at the 10 strategies that will help you achieve a better credit score.
Top 10 Ways to Improve Your Credit Score
1. You must pay your bills on time
Late payments can cause credit scores to drop. Credit scores are determined using company-specific formulas which take into account a variety of factors. While it won’t immediately give you a boost and is not the most exciting strategy, timely payments to your loan and credit card bills every month are the best way to repair damaged credit scores.
Your score could be significantly lowered if you are late paying 30 days or more. This is particularly true if you have several late payments on credit reports. Late payments can lead to higher interest rates and additional fees. This means that you will have to pay more for credit, and it may also reduce your cash flow to pay off balances.
2. Keep your credit utilization low
Credit utilization refers to the percentage of credit you use at any one time compared to your total credit limit. If you have a total credit limit of $10,000, and total debts of $5,000, then you are entitled to a 50% credit utilization rate. This means that you are only using half the credit available to you. Although there is no absolute rule, experts recommend that credit utilization rates be kept below 30% to increase credit scores.
Also read: How to Maximize Your Credit Card Rewards: 6 Best Apps
3. Do not apply for too many new credit cards at once
When you are making a large financed purchase, it is important to shop around to find the best deal. You can do serious damage to your credit rating if you apply for too many accounts at once. Lenders may become concerned if you have more than a handful of credit inquiries on your account within a short time.
This only applies to hard inquiries or actual applications. Lenders may be concerned if you have uncertain financial circumstances. Hard inquiries can be more important if your credit history isn’t extensive or you have only a handful of accounts. Prequalified offers that you may receive from soft inquiries will not have an adverse effect on your credit score.
4. Resolve credit reporting errors
Scorers and credit reporting agencies are not perfect. They make mistakes all the time. You should start reviewing your credit scores and credit reports from all three major credit reporting agencies (Experian, TransUnion, and Equifax) regularly if you don’t already. You have the right to request free copies of your credit reports from each company once per year in the United States. Start by visiting AnnualCreditReport.com or call 1-877-322-8228.
Next, examine your reports for errors. If you find any discrepancies, such as accounts still owing that you have not paid off or payments incorrectly marked as delinquent, you should immediately take steps to correct them.
5. Consider a credit repair service
You may be able to identify and fix negative credit errors and other issues with your credit report using legitimate, consumer-oriented credit repair services. This area can be fraught with fraud so make sure you do your research and look at reviews from other users. If possible, get recommendations from colleagues or friends.
Avoid companies that aren’t transparent and reputable.
- High-pressure sales tactics
- Ask for an upfront payment
- Promise to remove factual negative items from credit reports (that’s impossible).
- Offers to do only what you can do (e.g., review credit reports, dispute errors).
- We urge you to not contact the credit bureaus
6. Use a secured credit card
Secured credit cards allow you to make a security deposit of some amount, usually $200. Your credit limit is determined by the amount of your deposit. The card will be used as any other credit card. You can make purchases, up to your limit, and then you’ll pay them off each month.
The credit card company may access your deposit to settle the debt if you don’t pay the due amount. This secures them from extending credit to you. This eliminates their risk, making it an attractive option for borrowers looking to improve their credit scores and rebuild their credit.
7. High-interest debts should be paid off
Any debt that is tied to a high rate of interest is going to cost you every month if it isn’t paid in full. High-interest debt can lead to financial difficulties, such as lower credit scores, reduced credit scores, and the inability to pay off other debt. You can pay off high-interest debt, free up cash and make timely payments. This will increase your credit score and help you to improve your credit score.
Also read: How to Choose the Best Credit Card Machine for Small Business
8. Do not close your old credit accounts
If you have paid off your credit cards successfully, it can be tempting to close them. Closing an account won’t erase past events and can even cause more damage than good. Companies also use the length and age of their credit accounts to determine your credit score.
Keep those accounts open with zero or very little balances, and think twice about freezing credit unless you have been the victim of identity theft. This will also increase your credit utilization rate, which can give you a boost to your score.
9. Maximize your credit card limit
Once you have paid off your debts, it can be tempting to close credit cards. Particularly if they have a history of delinquent payments or other negative events. It also signals that you are experiencing financial stress. Lenders will see this as a red flag. They may decline credit applications or increase interest rates on existing accounts to protect themselves. This can ultimately lower your credit score.
10. Use credit responsibly
Credit limits are not free money. You will have to repay the interest on any amount you charge. Sometimes, that interest can be quite high. You should not charge more than what you can afford to pay each month. You’re better off using credit to pay for things you wouldn’t otherwise do in cash, except in an emergency like medical bills or critical car or home repairs.