There is nothing quite as frustrating in modern age as managing and improving your credit score. It can be a tedious process of that takes several months to finally reap the fruit of your labor, which is a foreign feeling in our culture of instant gratification.
Whether you are a young adult coming out of the college haze and meeting the real world or an established family person paying off your first home, your credit score can impact your life in more ways than you think. A low score can increase your monthly bills, prevent you from getting your dream home or even thwart you from getting hired.
Before we dive into it how to improve your credit score, it may be beneficial to go over how your credit score is calculated. The most commonly used credit score is from the company FICO and it measures how credit-worthy you are compared to others. Their point scale is 300 to 850, where the higher your point score the better rates you can get with credit cards or loans.
FICO uses variables like payment history, types of credit uses, new credit, amount owed and payment history to determine your credit score. Of these factors, your payment history holds the most weight in the calculations so basically, if you pay your bills on time you should be in good shape.
Improving that score is not a quick fix and it doesn’t happen overnight. Here are some tips to help begin your climb to a better score.
Do Not Be Tardy with Your Payments
As alluded to early, late or missed payments for your bills can devastate your credit score. A rule of thumb: it’s far easier to ruin your credit score than it is to improve it and missing payments fast tracks your decline. Late or missed payments affects your credit and your credit score.
One of the bigger missteps people have when to trying to get ahead, is putting money into a saving account for a major purchase, like a house or a car and the monthly bills are tossed on the back burner. Pay your bills than lock away any leftover income.
Old Debt is Your Friend
It’s a misconception that once you have paid off a credit card to immediately close the account so it is no longer on your credit report. However, that first credit card you got in college can actually help you look better in the eyes of credit lenders. Having old credit that you are not using speaks volumes whenever someone is looking at your report. This credit that you could potentially use, but aren’t using, signals responsibility with your bills and can be beneficial to you later down the road.
Abolish Extra Credit Card Balances
While it is good to have old credit that aren’t using, it can however start hurting you if you have small balances on multiple credit cards. Balances that are $100 and under is called nuisance credit and having a collection of these can have a negative effect on your credit score. It’s a good strategy to pay these small balances off to boost that score. Instead of charging minor expenses across multiple cards, designate a single card to pay with. The few balances you have on your credit report, the better off you will be.
Keep an Eye on Your Balances
One of the most important elements of your credit score is revolving credit versus how much you are actually using. The smaller this percentage is the better. It is best to shoot for using 30 percent or less. It is best to pay down your credit card balances and keep them low.