The Top 5 Ways to Improve Your Credit Score
Your credit score is one of the most important 3-digit numbers in your financial life. Your credit score will affect whether you can get approved for buying a car, getting a loan for a new business, or if you want to rent an apartment for your family. By equipping yourself with knowledge about how to improve your credit, you’re well on your way toward positive results.
Now, we all know that building a good credit score is an important part of the adult world. If your score is not where you'd like it to be, there are many ways to increase it. Let's discuss the top 5 ways to improve your credit score that you will notice!
1: Create credit to build credit
To build your credit, you must have open lines of credit. If you're just starting out, start small. Get a credit card that offers rewards points, for example, points each time you purchase gas. Use this card only for gas purchases and pay it off every month. That way you can budget more effectively and keep track of your expenses!
Curious about how your credit score is calculated? Watch John's video below:
2: Never miss a payment
One of the most important practices to build your credit is to make sure that you always pay your minimum when it's due. Most credit cards let you link to a checking account that automatically will draft the minimum payment due if you forget to make your payment on time. If you're able to pay the balance in full, try doing that instead of paying just the minimum to avoid rolling over extra expenses into the next month.
3: Use your credit card sparingly
Your utilization of your credit card will make a difference in your credit report. Keep the balance on your credit card to a minimum compared to the available credit you have. A general rule is to keep it below 30%. So, for example, if you have a line of credit that is $3,000, try your best to only spend a maximum of $900 a month. You will thank yourself next month.
4: Don't close out your unused credit cards
While it may seem counterintuitive, if you have a card that you do not use, do not close the account. Contrary to what many people believe, closing a credit card can actually have a negative impact on your credit score in some instances. When you close a credit card, your history on that account will stay on your report for about 10 years. After that time is up, your account average will take a hit and your overall credit limit will decrease, hurting your credit utilization ratio. If you don't want to use a certain card anymore, try to set up a small recurring monthly expense, such as a subscription under that card. This will keep your card active while paying for an expense you already would have paid for!
5: Keep track of your report
It is an important practice to monitor your credit reports to make sure all data being reported is correct. Some credit cards allow you to set up alerts in the event your card was used suspiciously without your knowledge, such as Discover. If you can monitor your card uses and check to see that no outside source is affecting your credit score.
Credit Karma is a great app for credit building! Check it out by clicking below:
Improving your credit score doesn't have to be a long, difficult process. If you're going about it the right way, it can actually be pretty simple. Follow these steps and you should be well on your way to a healthy credit score before you know it!
If you need help building your credit score or with any other financial goals, book an appointment with me here!