A low credit score can make life hard. It may prevent you from getting a loan for a car or home. It can mean that you’ll pay higher interest rates on credit cards, or even that you won’t get approved for one. A low score can even impact your ability to get a job.
If a low credit score has been hanging over your head for years, don’t despair. It’s not too late to make progress and improve it. You can make changes now that will boost your credit within the next 60 days. Read on to learn six simple ways to improve your credit score.
1. Find Out What’s Dragging You Down
You may be used to getting monthly alerts about your credit score. But have you looked into the factors of your financial habits that tabulate it? If not, research which of your financial habits are contributing the most to your lower score. There are five factors that help calculate your score: credit utilization, on-time payment history, credit mix, new credit, and credit history length.
Identify what areas you’re struggling with and those where you are doing well. Once you’ve clarified your strengths and weaknesses, you can focus your efforts on the right places. Rank the factors in order of your weakest spots to your strongest to prioritize your game plan for improvement. Once you’ve done this exercise, you’re ready for the next step.
2. Make Sure You Have the Right Accounts
One factor of your credit score is credit mix. Credit mix is one way of identifying the different types of credit you have on your report. One type is an installment loan. An installment loan is a fixed-term repayment plan with a specific monthly payment amount, like a car loan or mortgage. Another type of credit is revolving credit, like a credit card.
If your credit is damaged to the point where you’re concerned about qualifying for a credit card, you have options. For example, you can consider a secured credit card. A secured credit card works just like a traditional credit card. However, instead of having a revolving line of credit for purchases, these cards are secured by your payment account. When you make a purchase using your secured credit card, your payment account can be used to make on-time payments.
The activity on these cards is shared with credit bureaus just like a traditional card. This results in your good on-time payment history showing up each month on your report. After just a few months, you could see your score improved thanks to your good habits.
3. Review Your Spending Habits
While nurturing your credit score is important, oftentimes credit issues start with a mismanaged budget. Do you struggle with making payments on time or frequently max out or challenge the limits of your credit cards? If so, those habits can be damaging to your score and are worth working on.
Pull up the last 90 days of your transaction history on both your checking and credit accounts. Export them into a spreadsheet file and sort them based on the spending category. Identify an average amount that you spend each month on potentially problematic categories. Some budget-busters include shopping, groceries, and dining out.
Compare your spending habits to your available budget and identify areas to trim down. If your spending is in alignment with your budget, confirm that you’re making on-time payments. Keep your credit utilization rate under the ideal amount of 30% to have the best chance at a great score.
4. Automate Your Obligations
There are plenty of things to think about on any given day. Whether you made your credit card payment on time does not need to be one of them. Free up your mind for more important thoughts than keeping on top of your bills by automating your monthly obligations.
For starters, schedule payments for your mortgage, rent, and car payments. Falling behind on these can be damaging to both your score as well as your living and transportation situation.
Next, schedule an automated payment for the minimum required balance on your credit card. Taking care of the minimum can allow you to have flexibility in your budget when you pay the total balance.
Aim to pay your balance in full, but acknowledge that life happens. If you can’t pay the total, remember that paying on time and keeping your utilization below 30% is best for your score. Focus your efforts for the following month toward resolving your total balance and adjusting your spending habits.
5. Track Your Progress
Typically, your credit score is refreshed every 30 to 45 days. Additionally, your lenders report credit activity several times throughout the month to the bureaus, meaning your score is ever-changing. Instead of obsessively checking it, commit to checking it on the first of the month.
Create a tracking spreadsheet to log your score reported by one or all of the three credit reporting bureaus. If you want to get creative, consider exporting your data into a line graph to give you a visual picture of your progress. Keeping track of how you’re performing can help you stay motivated in your pursuit of a desirable credit score.
Post your progress in an easy-to-see place like on your refrigerator or make it your computer background. Seeing your progress can keep you motivated each month.
6. Set a Credit Score Goal
It’s always a great idea to aim for a good or even great credit score. But what is the end goal of having an enviable score? You may have aspirations for buying a home and qualifying for the best rate. If that’s the case, keep your sights set on achieving a score that is most desirable by lenders. Generally, mortgage lenders want to see a credit score of 620 or higher.
If you want to get your score in the good range, aim for a score of 670 to 739. Aside from the confidence boost, that good credit can give you, it’s ideal to maintain a solid credit score. When the need for a credit check arises, you’re in the best position possible.
It’s never too late to start cultivating good credit habits. You can turn your score around in just a few months and enjoy the perks that go with it. Good credit opens up possibilities and, with your effort, these possibilities are yours for the taking.
