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If you have ever made a big purchase (think: bought or leased a car, purchased a home, secured lending for a business endeavor, etc.), then you know how important it is to have a strong credit score. Credit scores impact nearly every large purchase you make. This year, make it a goal to improve your credit score, even by just a small margin.
Where should you start?
First – check your credit score. In order to improve your score, you first need to KNOW your score. You are entitled to a free credit report every twelve months from each of the three main credit bureaus: Experian, Equifax, and TransUnion. Log on to one of the credit bureaus to find out where you stand. When viewing your score, be on the lookout for any suspicious activity. If your score seems wildly out of line with your expectations, do a double (or even tripe) check of the report. If anything seems suspicious, contact the credit agency to make an inquiry and make sure you are not a victim of identify theft or any other fraud. This isn’t overly likely to occur, but it never hurts to stay vigilant.
What’s a good credit score? While the range varies according to what source you consult, a score of 690 and above is generally considered “good” credit. That said, an excellent score is 720 and above (the maximum score is 850). Aim for a score of 750, if possible. With a score of 750, you will find that you may have many favorable options when it comes to interest rates on long-term financing and credit cards. Worried your score isn’t where it should be? Rest easy, girlfriend …you CAN make improvements.
How can you improve your credit? Here are a few quick strategies:
Get Organized
This may seem obvious, but that pile of bills and receipts can be overwhelming. Before you do anything else, make a commitment to get organized. It is a lot easier to stay on top of your payments and to track your spending when you have a filing system or other method that makes sense for you. A few suggestions: try downloading a budget app (I love ClarityMoney) or purchasing a filing folder. As tedious as it may seem, it is worth the extra time it takes to keep your bills and receipts organized.
Pay all of your bills on time
Do you know when each of your bills is due? You may know that your mortgage or rent payment is due at a specific time of the month, but do you know when all of your other payments are required? Take a minute to write down all of your bills and automated expenses for each month and the date of the month that they’re due. Keeping track of when your expenses are due is incredibly important in helping make sure you pay all bills on time to avoid accruing late/penalty fees. Paying all of your bills each month is a great way to signal to credit agencies that you are acting responsibly in managing your payments.
Start Tackling Your Debt
if you have outstanding debts, first ensure you are making the minimum payments for all accounts. Then, arrange your debts from highest interest rate to lowest. For the highest interest rate debts, aim to pay as much as you can each month (i.e. credit card bills), and continue making minimum payments on all other debts. Continue to pay off as much of your high interest rate debt as you can each month until that debt has been eliminated. Once you have eliminated the debt with the highest interest rate, turn your attention to the debt with the next highest interest rate, and so on. Strategically paying off your debts will allow you to minimize the interest rate impact over time and will positively impact your credit score.
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Keep Your Debt Coverage Ratio to 30%
This tip may sound confusing but here’s the deal: you can avoid hits to your credit score if you keep your credit card balance below 30% of the allowed limit. For example, if your credit limit was $1,000 you would want to keep a balance of $300 or less (30%) on the card at all times. Obviously, you can spend up to your credit limit, but maintaining a 30% debt coverage ratio will allow you to avoid incurring unfortunate, negative hits to your credit score.
Be Consistent
Keeping one card open for a long period of time will allow you to build credibility and demonstrate a history of responsible spending. It may seem tempting to open credit cards at the checkout counter to take advantage of the latest savings offer (“Would you like to open a credit card with us today and save 20% off of your purchase?”), but opening a credit card can result in a “hard inquiry” of your credit and can negatively impact your credit. That said, if you have never owned a credit card, having one (and consistently paying at least the minimum balances each month) can certainly help you build your credit over time. Start by just using the card for small, routine purchases (such as gas, groceries, etc.) and over time, you will establish a credit history.
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