According to a survey done by the National Foundation for Credit Counseling, more people are embarrassed to admit their credit score than their weight. Much like losing weight, improving your credit score does not happen overnight. It takes time, determination, and lifestyle changes. Making monthly payments on time does not mean your credit score will be perfect, there is more that goes into building your credit. If you have a low credit score or just want to improve your credit, here are 5 simple ways in which you can do so.
Watch your credit card balances
Obviously, you want to keep your credit card balance low, but that is not the only thing affecting your credit. One of the factors of your credit is the ratio of how much revolving credit you have versus the amount you’re actually using. The smaller the ratio the better. Even if you pay your balance in full each month your utilization ratio may be high. Experts say that you should keep your utilization ratio below 30%. It’s best to make multiple payments throughout the month.
Leave old debt on your report
After paying off a large amount of debt, like a mortgage or a car loan, many people want it erased from their credit report. Debt that has been paid off is considered good debt, and the more history of good debt on your report, the better. It would be like trying to erase your straight A’s in high school, 20 years later. This is why you should not close accounts that demonstrate that you are responsible for your debt.
Pay your bills on time
This may seem like an obvious one too, but paying your bills on time is one of the most important factors in improving your credit score. Sometimes life gets in the way and paying bills may slip your mind, that’s why you should set yourself up for automated payments. Skipping a payment or late payments make up 35% of your FICO score.
Eliminate small balances
To improve your credit score, you should pay off all your credit cards with small balances. One of the factors in your credit score is how many cards with balances you have. Instead of charging $40 on one card and then $50 on another, make these smaller payments all on one card. You should pay off all your smaller balances and then choose one or two cards as your go-to card.
Begin working on your credit now, you may never know when you’re going to need it. If you start good habits now, you’ll have excellent credit in no time. If lenders deny you a line of credit they are required to show you the credit score they used thanks to the Dodd-Frank Wall Street Reform and Consumer Protection Act. Also, keep in mind that you should stagger obtaining your reports, it’s best to send a credit report every three to four months.