Let’s be clear from the beginning: trying to improve your credit score is not easy. This is because we are talking about changing the score on records that date back many years.
Fortunately, it’s not impossible. It’s difficult, yes; but it’s not impossible. And it will take time, patience, and consistency to do.
Those who are impatient often fall for scams that promise quick results. Your credit score can’t be changed through simple tricks and techniques: instead, the only way to change your credit score is to change your present actions. By changing your present financial behavior, you cast the record of your past financial behavior in a new light.
1. Change how you handle emergency personal loans.
The record of your past behavior when you took out an emergency loan from a lender may have been marred by slow payment or missed payments. You may even have defaulted on the loan altogether. Moving forward, if you need a loan be sure to first research alternative payday loans online to learn about safe ways to borrow money. Then be sure to figure out a realistic repayment plan so that you can pay your instalments on time and completely repay the entire loan.
2. Keep your credit card balances low.
The amount of your revolving credit affects your credit score. The smaller the percentage of the amount you use, the better your credit rating will be. Aim for 30 percent or lower.
How do you do this? You pay off as much of your balance as you can manage, then once it is paid down, keep it low.
Credit scores don’t measure how much of your credit card balance you pay down; credit scores focus on your utilization ratio. Even if you pay off your balances in full, but have a high utilization ratio, your credit score may not improve.
Credit score, in other words, is often based on your monthly balances. One way to lower this balance is to ask your credit card company it they will accept a number of payments through the month.
3. Get rid of your nuisance balances.
A nuisance balance is a term that describes small balances spread over many credit cards. Credit scores factor in how many cards you are using that you owe on, rather than the amount you have on each one. So even if you have less than a $100 on each card but use a number of cards, it can affect your credit score negatively.
For instance, if you make an $90 purchase and put $60 on one card and $30 on another hoping to keep the total amount owed on each card small, you are actually hurting your credit score. A better strategy is to put the entire balance on one card. Credit scores are based on how many cards you have a balance on rather than the amount owed on each card.
The way to get rid of a nuisance balance is to review all your credit cards, notice which ones have small balances, and then get them paid off. Next, just use one or two cards to carry your debt. Use these credit cards for everything.
4. Understand the difference between good debt and bad debt.
Many people believe that any debt on their credit card is bad. Once they have paid off a large purchase in full, they want the debt removed because they don’t want a record of the debt on their credit card reports.
This is actually not how it works. A bad debt is one that you never paid off while a good debt is one that you paid down in full.
Focus on paying off all the current debts you have so that you have a record of consistently paying down the debt. This is considered good debt because it shows that you fully satisfied your agreements.
What about negative debts based on defaulted debts? These will be removed after 7 years.
5. Make it a habit to pay off all your bills on time.
It’s easy to get into the habit of procrastinating on bills. This will only hurt your credit score. Things will get even worse if you get distracted and completely forget to pay them. You should plan ahead to make sure that you have the money available when your bills are due. If you pay your bills in full and on time, it will improve your credit score.
6. Keep up with your credit reports.
How do you know if the things you are doing are working? Assuming you pay all your bills on time and use your credit cards properly, your credit scores should reflect your new behavior.
By staying abreast of your credit reports, you will know the best times to apply for a big ticket item like a new car.
7. Work with Accurate Information
When trying to improve your credit score avoid acting on guesses about how it works or other people’s opinions. There are all sorts of misleading myths about it.
Stick with the reality.
For instance, the Experian website offers the following actionable guidelines to improve your credit score:
- Pay your bills on time.
- Keep balances low on credit cards and other “revolving credit.”
- Apply for and open new credit accounts only as needed.
- Pay off debt rather than moving it around.
They also suggest that you:
- Minimize outstanding debt
- Avoid overextending yourself
- Refrain from applying for credit needlessly