Having a good credit score is a vital part of your financial health. Good credit helps you obtain mortgages, car loans, personal loans, and credit cards. It can also get you approved for house rentals, apartment leases, utilities, and even some jobs. There are very few things in life that don’t require good credit.
An adverse credit score can hamper some of the things you want to do, but that doesn’t mean you’re stuck with it forever. There are actions you can take to improve your credit score. It may take some time and effort, but the benefits of a good credit score are more than worth it.
1. Pay Your Bills on Time
Paying all of your bills on time, whether they’re lines of credit, rent, or utility payments, goes a long way toward building a good credit history. Even if your credit score is lower than what you want it to be, paying your current bills on time only helps.
If you’re financially in a position to pay your bills early, then try to do so. An easy way to make sure that your bills are paid on time is to set up auto-pay on your accounts. All you have to do is note the payment dates on your calendar after they’re set up, and you’re good to go.
2. Pay Off Credit Card Debt
Carrying monthly balances on your credit cards can weigh down your credit report. Paying them off, especially if they’re particularly high, can seem like an impossible task, but you can take a couple of different approaches to pay them down.
One is making extra payments to the cards with the smallest balances to pay them off fast. Another is to make extra payments to the cards with the highest balances to save the most interest. A third method is to transfer your card balances to a 0% APR card and pay it off as quickly as possible.
3. Limit Credit Applications
Each time you apply for a credit card or loan, a hard inquiry is initiated on your credit report. Each hard inquiry on your credit report could potentially lower your score by a few points. Losing those points lowers your credit score unnecessarily.
Too many hard inquiries on your credit report raise a red flag with prospective creditors, as it gives them the impression that you’re a higher credit risk. This makes you less likely to be approved for credit in the future.
4. Don’t Default
It’s understandable if you fall behind on one or more bills when money is tight. When you have bills to pay that directly impact your daily living like rent, mortgage, utilities, and transportation costs, it’s easy to pay them while putting your credit card and loan payments on the back burner.
The worst thing you could do is to default on your credit card and loan debts, as they’ll negatively affect your credit score. To avoid defaulting, contact your creditors to find out if you can structure an alternative payment arrangement or even lower your monthly payments.
5. Open a Secured Credit Card
Secured credit cards are an excellent option if you can’t get approved for a traditional unsecured card. With a secured card, your available spending balance is based on how much you deposit when you open the card.
When you use the card, you make monthly payments as you would for an unsecured credit card, with the payments reported to the credit bureaus. As long as you make your payments on time, you’re on your way to an improved credit score.
6. Monitor Your Credit Report
Don’t assume that your credit report is always accurate. There could be one or more reporting errors that are lowering your credit score. Some services allow you to obtain a free copy of your credit report every year for you to review.
If you find errors on your credit report, first contact the credit bureaus to file your dispute. Next, contact the companies and file a dispute with them in writing. They have 30 days from the date your letter was received to respond.
7. Don’t Close Credit Card Accounts
You may have one or more major or store credit cards that you haven't used in a long time and are tempted to permanently close the accounts. This could negatively impact your credit score in ways you didn’t anticipate.
Closing out the credit cards you’ve had the longest reduces the average age of your credit history and could lower your score. It may also increase your credit utilization ratio because it lowers the amount of available credit that you have.
8. Maintain a Low Credit Utilization Ratio
Keeping your credit utilization ratio low is an excellent way to improve your credit score. A credit utilization ratio is a percentage that’s calculated by taking the amount of revolving credit you have in use and dividing it by the total amount of available revolving credit you have.
The lower your ratio means you’re not using a lot of your available credit, and that your outstanding credit card balances are low. A higher ratio means you’re using more of your available credit and your balances owed are higher.
9. Get Help With Medical Debt
Not everyone is fortunate enough to have medical insurance that mostly or fully covers their out-of-pocket expenses. If you fall into the category of needing help paying for your hospital bills with or without health insurance, consider applying for charity care.
Charity care consists of funds to cover the medical expenses of uninsured and underinsured patients. Sometimes these funds come from the hospitals, or they can be sourced from your state or nonprofit organizations. Contact the hospital to see if you qualify for partial or complete payment of your bill.
10. Get a Credit Building Loan
Credit-building loans work similarly to secured credit cards but with some major differences. With a credit-building loan, the bank deposits the loan amount in an interest-bearing account like a savings account or certificate of deposit (CD).
You make monthly payments to the account as you would with an unsecured loan. At the end of the term, which is typically a year, the funds are disbursed to you in full. It’s a great way to build up a savings account while strengthening your credit.
11. Avoid Maxing Out Your Cards
Your credit cards may have a maximum spending limit, but that doesn’t mean you have to use it all just because it’s there. It’s tempting to go on a spending spree, knowing that all you have to do is make minimum payments, but that’s not advisable.
You may need to use that credit for an unanticipated urgent or emergency expense. Also, if you don’t pay the balances in full each month, you’re accruing interest charges that only add up each month, putting you into even more debt.
12. Pay Off Debts in Collection
If after checking your credit report, you find that you do have legitimate outstanding debts that are in collections, the worst thing you can do is to ignore them. Contacting the creditors and coming up with a repayment plan helps.
Creditors want to collect money to close out the accounts; try to negotiate the balances owed so you’ll end up paying less. If that’s not possible, then try to pay off the debts as quickly as possible to get them off your credit report.
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