Your credit score is an extremely important number that can affect your ability to make a major purchase or investment. The higher your credit score, the better, or more creditworthy you are perceived to be by lenders. This will result in lower interest rates and more purchasing options for you. To learn more about what a credit score is and how it can affect you financially click here. If you think your credit score could be better, learn how to improve your credit score by following these steps:
- Pay off debt- When improving your credit score, it is extremely important to first pay off the debt you currently have. This means stop using ANY AND ALL credit cards. Then review your credit report to see which open accounts have the highest interest rates and tackle paying them down first. Putting together a payment plan that budgets paying off your highest interest accounts while maintaining minimum payments on your current open accounts will get you out of debt quicker while increasing your credit score over time.
- Don’t be a habitual borrower- In order to permanently improve your financial situation, it is important to change your spending habits. If you always reach for your credit card when shopping then STOP; this is the source of the problem. Take a moment to think “can I truly afford this” and “do I truly need this?” Permanently staying out of debt may mean changing your lifestyle, but at the end of the day it will improve your financial situation and your emotional well-being.
- Make your payments on time- Making your payments on time and continuing to make them on time will dramatically increase your credit score, allowing you to avoid inquires on your credit report. If writing down when bills are due has not worked for you in the past, have someone close to you remind you when you have an upcoming payment due. In addition, if you have someone else paying your bills, make sure to check-in with them frequently to see if they are paying your bills on time. Creditors don’t care if missing a payment wasn’t your fault; they only care that the bill wasn’t paid.
- Set-up a budget and stick to it- Create a monthly budget that lays out how much money you have available after bills and expenses. Then ONLY buy what you can afford! Live your life as if you don’t have credit cards even if you do. It may seem extremely basic, but it’s 100% effective in increasing your credit score and to helping you stay out of debt.
- Be careful of inquiries- Every time your credit score is pulled, or you open a new credit card, your credit score takes a hit. To minimize these effects, only pull your credit score when it is absolutely necessary, and if it needs to get pulled multiple times, for example when car or furniture shopping, try to do it all in one day to avoid multiples hits against your credit. In addition, don’t open credit cards that you don’t need just to increase your available credit. This approach can backfire and actually lower your credit score.
Maintaining a high credit score and staying out of debt may mean that you need to make some major lifestyle changes. Past mistakes can affect your credit score for years to come, and might end up affecting your ability to buy that “dream house” down the line. Maintaining good credit is important to do on a consistent basis and will allow you to make major purchases without worrying about being denied or getting a high rate.
Consistently monitoring your credit report will help you to locate and eliminate problems early on before they have a major effect on your financial status. Once a year you are entitled to a free credit report from EACH of the three credit reporting agencies (Equifax, Experian, TransUnion); so take advantage of this free service and make sure you know where you financially stand. To learn more about what a credit score is and how it can affect you financially click here.
