Increasing your credit score does not have to be painful. In fact, no extreme measures are required in order for you to increase your score. However, you need to commit to a long-term goal of building good credit or you won’t succeed. Here are some steps to help you build up your credit:

1. Pay your bills on time every month

Your payment history determines 35% of your score–more than any other credit factor. In order for you to stay on top of these payments, set up all of the bills that you can to autopay for at least the minimums to avoid missing a payment. You can always pay more if you can afford it. If you make late payments, this information stays on your credit reports for seven years. They will do the most damage to your score in the first two years, and after that, the impact starts to decrease, but it is important that you aren’t in this position in the first place. 

2. Stay on top of your credit reports

It is important to monitor your credit reports if you have received a hardship agreement from a lender because of the pandemic. Because of the CARES Act rules, lenders need to report your payment as paid in full while the agreement is active, as long as you were not already delinquent. However, mistakes happen and even in normal times, one in five reports had inaccurate information. Through April of 2021, you can get one free credit report per week from each bureau. You can access your reports at AnnualCreditReport.com instead of other websites that offer “free” credit scores but will make you put down your credit card number to sign up for a trial. You can file a dispute with the bureaus if you see anything inaccurate or any accounts that you don’t recognize. Your credit reports will not show your credit score, but you can utilize a free credit-monitoring service to check your score. Most banks and credit card companies will also give you your credit scores for free. 

3. Open a secured card if you don’t qualify for a regular card

By opening a secured credit card, you can build positive credit when you are not able to get approved for a regular credit card or loan. You can put down a refundable deposit that becomes your line of credit. After you make your payments on time for a year, you can qualify for an unsecured line of credit. Make sure that the card issuer reports these payments to the credit bureaus and look for a card with an annual fee of $35 or less. Some secured options are the Discover it Secured card, OpenSky Visa card, and Secured Mastercard from Capital One. 

4. Build credit…even if you have made mistakes

You usually need a credit card or loan to build a credit history. However, if you have bad credit or if you are new to credit, getting approved for a loan or credit card is hard. If you look for cards that are marketed to help people start or rebuild credit, you will be more successful. In addition, store credit cards which you can only use at that specific retailer can be a strong option. 

5. Give more priority to credit card debt over loans

Make sure you pay off your credit card debt instead of other debts such as student loans or mortgages. Your credit card debt affects your score more so than these other debts. This method will also help you save money going forward as interest rates on credit cards are usually higher than other types of debt. 

6. Ask for a limit increase

If you increase your credit limit, you can build your credit score because it decreases your credit utilization ratio, or the percentage of credit you are using. The standard recommendation is to keep this below 30%, but the closer to zero the better. If you have open credit, make sure to ask your current creditors for an increase rather than applying for new credit. This way, you will avoid lowering your length of credit which could hurt your score. The downside of a higher credit limit is that you will have more money to spend that isn’t yours. To secure the biggest credit score boost from a limit increase and avoid paying more in interest, you need to make sure you don’t add to your balance. 

7. Be selective when applying for new credit

When you apply for credit, it results in a hard inquiry, which drops your score a few points. If you avoid applying frequently for new credit cards, you can avoid this as people will assume that you are in financial distress. However, if you need a mortgage or loan, don’t worry about inquiring multiple times as long as you limit your shopping to a 45-day window. Credit bureaus will then treat this as a single inquiry so the impact on your score will be minimal. 

8. Keep old accounts active

If you are not paying huge fees, make sure to keep your credit card accounts open even after you paid off the balance. Credit scoring methods reward you for having a long credit history. If you make a purchase at least once every three months and then pay it off in full on this account, credit card companies will keep your account open. 

9. Keep your score in perspective

All tools out there can make managing your credit score stressful. Make sure to remember that your credit score isn’t a summary of the state of your finances. The score just shows how risky of a borrower you are. Aspects such as saving for retirement, earning a living, and having an emergency fund do not affect your credit score. Lenders will also look at more than your credit score. If you have a low debt-to-income ratio, steady paycheck and decent down payment all increase the likelihood of getting approved when making a big purchase even if your credit score isn’t great. Lastly, do not focus on your score if you are unable to pay for necessities. If you need to choose between paying your credit card bill or paying for rent or food, paying your credit card bill should be the lower priority. However, make sure to talk to your creditors if you can’t afford to pay them since they might have options. 

10. Consider a debt consolidation loan

If you struggle with credit card debt, consolidating your credit card debt with a loan could be helpful. Essentially, you are just taking out a loan to decrease your credit card balances. You will only need to make one payment and you will usually pay less interest since loan interest rates tend to be lower. If you use a loan to pay off your credit card, you will free up credit and lower your credit utilization ratio. You will need a credit score of at least 620 if you want to take out this kind of loan. If your score falls below this, you should work on building your score before applying for a debt consolidation loan.

Resources

https://www.swbcmortgage.com/mortgage-resources/10-ways-to-improve-your-credit-score

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