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Having a good credit score is an important financial goal because attaining and maintaining a good credit score will set you up for long-term success. When you work with banks to obtain credit or a loan, whether it be for a car, house or credit card, having a good score means lower interest rates and friendlier terms. Over time, this can save big bucks, especially when it comes to larger purchases like vehicles and homes.
Improving your credit score is not something that happens overnight, though. It is the result of an intentional effort to be a good steward of the money you are loaned and make choices that reflect positively on you. So, here are some tips and tricks that, over time, will result in your credit score increasing.
Make payments on time
This is a big one! Every time you miss a payment or a due date, think of it as a letter that your bank sends to the credit bureaus that will go on your report, and eventually be reflected in your credit score. Equifax notes that a 30-day delinquency could damage your credit by dropping it over 100 points – which takes a credit score from attractive loanee to questionable. I use a financial tool called Mint to track all of my different accounts. So, in light of how important it is to make payments on time, that leads to tip #2…
Turn on Autopay or Payment Reminders
Autopay can be man’s second best friend if utilized properly. If you are treating your credit card like a debit card, as I advise, and not spending more than you can afford, you should have no issue flicking that autopay switch and not having to worry about missing payments. As long as you have the money available in your bank account to transfer over to your credit card, autopay is a great tool that takes human error out of the equation. Payment reminders are another available tool as well. Basically, as connected as we are on a regular basis with smartphones, email, apps, etc. there is no excuse for missing a payment. Have I reinforced how important it is to hit payment due dates?!
Don’t carry a balance
Now, this comes with a bit of a caveat. It is possible to carry a balance and not get dinged on your credit score, it just takes a little more work, which is why I default to making full payments against the total balance on my cards at least once a month. In a previous post, I discussed the “credit mix” that makes up your credit score – of which, 30% relates to the amount owed. Check it out here for a more in-depth dive, but as a general rule of thumb, I tend to try and keep my credit utilization low by always paying off any balances on my cards. This practice also means I don’t have to deal with late payments, so win-win!
Ask for a raise
In light of #3, if you manage your money well and have been a great customer, it doesn’t hurt to ask your bank to raise your credit limit. With a higher limit, that raises your credit utilization threshold (remember, don’t go over 30% as a general rule) and will have a positive effect on your credit score if you are carrying larger amounts on your credit card, and want a little more wiggle room.
Review Your Credit Report
This is always a wise thing to do at least once as you seek to get a handle on your credit. Credit reports are usually pretty accurate, but that doesn’t mean they don’t get it wrong sometimes, and according to the FTC, 5% of credit reports have errors on them, so it doesn’t hurt to check. If you review your report for errors and find some, you can take steps to correct them and that can go a long way towards improving your credit score. Once you have ensured that everything is correct on the initial report, you don’t need to keep checking your actual report, but I would advise just keeping an eye on your credit score through tools like Credit Karma or Credit Sesame. They are great credit monitoring tools, and I’ll get a review up on them soon!
Every time you apply for a credit card, open a new phone account or submit a student loan application, the bank you apply with sends a request for your credit to one or more of the 3 credit bureaus. This is what is called a hard credit pull, and they show up on your credit report for two years after they happen. They also have a nasty little side effect of dropping your credit score by about 5 points or so for a couple months. That’s a big reason why, if you are trying to build your credit, it’s almost always the right decision to say no to any credit card that doesn’t have a significant benefit for you… And that almost always rules out every single retail credit card that cashiers try to get you hooked on. Saving 15% on those jeans might be nice, but just remember, it comes with a credit score cost, and unless you are making an expensive purchase like appliances, it typically is not worth it.
Always Keep Your Oldest Card Open
Last but not least, this tip is a very important one, and can go a long way towards eventually improving, but definitely not hurting your credit. By always keeping your oldest card open, you are extending the length of your credit history with every passing day, and that is a positive for your credit score because it plays a 15% role in it. This is one of the easiest ways to keep your score on the upward track, and also one of the hardest to obtain because there is no way to speed time along. If you make a smart first-card choice (check out my favorite one) and get one without an annual fee, that makes tip #7 an easy one.
The Simple Summary
Well, that’s it for today folks. I hope this was informative and provided some solid tips towards managing and taking ownership of your credit score. It really is all about what you know and using it to your advantage, and especially with credit cards! Leave a comment below and let me know what you want to hear about next!