Whether you are looking for a great interest rate on your credit card, to purchase a new home or auto, financial swagger or to simply purchase some services such as insurance, your credit worthiness will be judged by your rating or score. A good credit score goes a really long way. If your score is low, that doesn’t necessarily mean it will take a long time to get it to (or back to) a good level. Whether you’re just starting out and trying to build your credit or simply looking to improve it, here are some tips to consider.
All Americans whether they have ever borrowed money or not, have a credit rating based upon previous payment habits and income. Even paying your electric bill contributes to your credit score.
A bad history, including bad card debt or outstanding loans with late payments, will place “black marks” on your credit profile with the three major credit reporting agencies. Establishing good habits will enhance your rating and improve your worthiness. How to get good credit depends upon what you want to do with your profile. Here are a few guidelines for doing just that:
1. Understand how your financial habits impact your score. Try to pay your bills on time. Late or missing payments will cause your credit file to be downgraded. The first step to boosting your score is to understand what causes your credit score to rise and fall. Late payments on loans or credit cards, multiple recent credit applications or closing established accounts can all cause your credit score to drop. Once you’ve identified your own causes, you can take actions to start improving your credit.
2. Don’t use too many or too few credit cards. Many experts suggest anywhere from two to four credit cards are best.
3. Pay at least the minimum amount due each month. Never pay less, as doing so will damage your credit rating. This one is hard to believe but yes, paying a card off completely can also have a negative impact on your score.
4. Make bill payments a breeze. Your payment history accounts for one-third of your credit score, so it’s especially important to stay on top of your bills when you’re working to build or rebuild your credit. When you miss a payment, like a medical bill or car payment, the creditor usually reports it to at least one of the three United States credit bureaus: Experian, Equifax or TransUnion.
5. Fortunately, you can take simple steps to avoid late or missed bill payments by setting up automatic payments wherever possible. Check with your bank for automated payment options, as well as utility companies and other businesses where you make regular payments. You can also use your bank’s payment tools to receive alerts when a payment is due or confirmation that your payment has been completed.
6. Review your report annually to catch any errors or possible fraudulent activity. Identity theft is often first caught this way. Report any suspicious activity, such as accounts opened in your name without your permission, to the credit bureaus and the proper authorities.
7. Use a secured credit card. One simple way to establish or rebuild credit is with a secured credit card. A secured credit card is a type of credit card that is backed by a cash deposit when you open the account. As you use the card, your bank reports to the credit bureaus, allowing you to build or rebuild a positive credit history if you use your card responsibly.
“With a secured card, you are putting your money into the bank,” says Dara Duguay, executive director of the Credit Builders Alliance in Washington, D.C. That cash deposit is generally equal to your credit limit. Say you put $200 in the account—this means your credit limit would be $200.
In time, Duguay says, “You could ask to see if you qualify and move on to a traditional credit card.” And after you close your secured card, you’ll get back your deposit.
Many of us pour through the internet searching for ways to improve or repair credit while others contact financial planners and lenders for their expertise. Often raising your credit score is simply a matter of personal responsibility and taking the time to correct errors on your report.
If you use your secured card appropriately, pay your bills on time and check your credit report regularly to review your progress, you’re likely to build your financial confidence—and your credit.