Poor credit can make it hard for you to get a mortgage, an apartment, or a credit card. It can put you on the hook for higher interest rates, which can make the loans and credit lines that you do get more expensive to repay.
If you have fair or bad credit, then you may be thinking about how to increase the credit score. As hopeless as the situation may seem now, poor credit does not have to last forever. You hire a credit repair company or take the time to yourself, there are steps you can take right now to start raising your credit score.
Reduce the Balances on Your Credit Cards
Most people do not realize that your credit score begins to be impacted when the amount of credit you’re using is at 60% of your available credit limit. The closer you’re to your credit limits the more it affects your credit score. It is suggested that your short-term goal be to decrease your account balances owing to below 50% of available credit limits. To attain this in as short a time as possible, we will encourage you to take your credit cards out of your wallet and put them someplace safe. This eliminates the temptation to use them. Set a goal to pay more than the minimum payment monthly to help you pay down your debts very fast.
Pay Your Bills on Time
Though this plan may seem very clear, late payments are the most common piece of negative info that seems on peoples’ credit reports and are frequently responsible for important drops in credit scores. When it comes to loans and credit cards, it is important that you make at least the minimum payments in a timely manner each and every month, with no exceptions.
The effect on your credit report and credit score will be considered if you are late or skip one or more mortgage payments, however, making late payments on other types of loans or defaulting on any loans will have a disastrous effect on your credit score that’ll have an effect for up to 7 years. The advantage to having credit cards is that you can determine how much you spend using them, then decide how much you want to pay back monthly, as long as that amount is equal to or greater than the minimum every month payment due. This lets you budget your money and make intelligent decisions, based on your financial condition.
Simply paying at least on your credit cards will keep those accounts from being late, however, the prices associated with that decision will frequently be important over time. Plus, this plan will keep you from greatly reducing or paying off the debt.
Use a Budget to Manage Your Finances
You really work hard for the money, but does the money work hard for you as well? If the answer is “no” or “I’m not sure,” it is time to put a strategy in place to manage your finances efficiently and receive the most out of your money. We call this plan a budget and it’ll help you to pay down your debt very fast; live within your means; pay your bills on time, and help build up your savings. Indirectly, a solid budget is important to improving and maintaining a good credit score.
Use less credit
Credit use is a lesser-known factor but it still makes up a whopping 30 percent of your credit score. Your credit use ratio is the amount of credit used out of the total amount of credit available to you. You can calculate your own ratio by adding up the credit you have utilized and dividing it by your total credit limit. Banks and lenders like to see this number below 30 percent and view a low use ratio as responsible credit use. If we are taking you back to high school math class, here is an example to make it a small clearer.
If your credit card limit is $5,000 and your balance is $1,250, your use is at 25 percent. As per the study, members who improved their credit scores over time have learned to manage their credit use. So, if you are looking to improve your credit score try to keep your credit use under 30 percent.
Increase your credit limit
We now know that credit use is significant when it comes to improving your credit score. A trick to improve credit score is to increase the credit limit on the credit card. While this may sound counterproductive, it is a helpful trick to improve your credit use ratio, since you are giving yourself more credit to work with. However, if you find increasing your credit limit a little too tempting then concentrate more on spending less in general and not as much on your use.