Learning how to improve your credit score is essential for financial and investing success.
It’s no secret that your credit score can have a major impact on your ability to get approved for financing—but did you know that your credit score can even affect your ability to rent an apartment or secure certain jobs?
Unfortunately, if you’re one of many Americans with less-than-ideal credit due to past financial blunders, you may have a hard time getting approved for car loans, mortgages, and other types of financing.
And even if you are approved, you might be stuck with a high-interest rate or other unfavorable borrowing terms.
While there’s no magic formula for boosting your credit score significantly overnight, there are steps you can take to gradually improve your credit score and improve your overall financial outlook.
1. Always Pay Your Bills on Time
One of the most common mistakes people make when it comes to their credit is that of making late payments or missing payments altogether.
Whether due to a lack of funds or simple forgetfulness, being late on a debt payment by even one day can result in a significant hit to your credit score.
And unfortunately, closing an account or even paying off a balance in-full will not make those “late payment” strikes disappear from your credit any time soon.
With this in mind, it’s important that you pay your bills on time.
Even if you’re only able to make the minimum payment, it’s better to pay a little on or before the due date than nothing at all. If you have existing late payments affecting your credit, the best thing you can do right now is to contact your creditor and ask if they can forgive the late payment(s).
You might be surprised at how often lenders are willing to do this, especially if you’re not a repeat offender.
2. Keep Your Balances Low
Even if you have a high limit on a line of credit, it’s always in your best interest to keep your balances low.
After all, one of the major factors that can affect your credit score is your “utilization,” which refers to the percentage of total available credit you use at any given time.
Generally, it’s best to keep this number under 30% for the best impact on your credit.
This means that if you have a credit card with a $10,000 limit, you should aim to carry no more than $3,000 of debt on the account at any given time. Using above that 30% threshold can cause your credit score to drop.
3. Pay Off Your Balances in Full
Third, pay off your balances in full, It’s one of the best ways to boost your credit score.
This means not just making the minimum payment, but completely paying off the remaining balance on an account.
Of course, this may not always be feasible, but it’s a goal to work towards. And when it comes to credit card debt, it’s always a good idea to only charge to your credit card what you can comfortably afford to pay off at the end of the billing statement.
If you can follow this advice, you’ll likely find that your credit score steadily increases month after month!
4. Don’t Move Your Debt Around
While it may be tempting to use one line of credit to pay off an existing debt, doing so isn’t going to help your credit score.
The only time it really makes sense to “move debt around” in this way is a situation where you’re consolidating your debt to secure a lower interest rate.
In such a situation, you may be able to pay off your debt sooner as a result of the savings on interest, which would ultimately help to improve your credit score.
However, you should only apply for a credit or debt consolidation loan after having done your research and calculations to ensure this is the best course of action for your financial situation.
Otherwise, it’s best to continue paying down your existing debts under the same account than it is to continue opening new ones and shifting your debt around.
5. Review Your Credit Report
Finally, make sure that you’re reviewing your credit report regularly for errors. You may be surprised at how common credit-reporting mistakes can be!
You can obtain a free copy of your credit report from any of the three reporting bureaus once a year.
Take the time to scrutinize your report and make sure there are no errors, such as incorrectly reported late payments or even accounts that you don’t recognize.
If you spot any problems, take the proper measures to report and dispute them as soon as possible.
This can generally be done via telephone, mail, or even online (depending on the reporting bureau). Once an error on your credit report is corrected, you should see your credit score adjust accordingly.
Do you have any other suggestions to improve your credit? Leave a comment below with your answer. If you’re serious about personal finance, download my free 12 Month Financial Success Planner.