Whatever your goals are—a comfortable retirement, buying a home, traveling the world—maintaining a strong credit score will be an important step to reaching them. But even if your credit score has suffered hits in the past, you can still aim for a stronger credit position by being vigilant, monitoring your score and adhering to the following tips:
How to Improve Your Credit Score
Tip #1: Pay your bills fully and on time. If you have trouble remembering when your bills are due, talk to your bank about setting up automatic payments through online banking’s bill payment feature, and never miss a due date again! If you're struggling with the amount of bills you have and their balances, see if you can lower them—consolidate student loans, bundle your renters or homeowners insurance with other insurance products, or find other ways to lessen that burden. Paying your bills on time won't immediately impact your credit score, but in the long run a history of on-time payments will improve your score.
Tip #2: Keep your credit card balances low. One of the main factors in determining credit score is utilization, or how much of your available credit you're currently using. You want to keep that percentage below 30%, so if your credit card has a $10,000 limit, focus on keeping the balance below $3,000. Obviously, the goal here is to pay off credit card debt, but even small steps can improve your credit score.
Tip #3: Get a (trustworthy) credit card if you don't currently have one. This might seem counterintuitive based on the last tip, but one myth about credit scores is that the act of having a credit card lowers your score. True, applying for a credit card counts as a hard inquiry, which does lower your score by a few points in the short term, but in the long term, having a high-quality credit card with a low or no monthly balance and a history of on-time payments actually increases your score. Without any credit cards, you won't be utilizing credit, but you won't be developing a credit history either. Look for cards with no monthly fees, low interest rates, and the chance to earn rewards or cash back.
Tip #4: Consider saying no to store credit cards. Signing up for a store credit card may seem like a great idea in the moment, because stores often give you a discount for signing up and/or using the card for your purchase. However, unless you shop there regularly and plan to pay off your balance each month, it's just another card to manage and another ding on your credit report for applying. Also, store credit cards generally come with high interest rates, so those ‘bargain’ purchases may end up being more expensive in the long run.
Tip #5: Fact check your credit reports. Annually you should request your credit report from a reputable source, such as www.annualcreditreport.com or one of the three major credit bureaus: Experian, Equifax, and TransUnion. Pulling your credit report does not negatively affect your score as long as you order directly from the credit reporting agency or through an authorized organization. If you spot suspected errors, dispute them. Being aware of the trends or changes in your credit score is really the only way to be sure you're taking the best steps to improve it.
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