Those looking to improve their credit score need only follow these three simple steps. Then just give it some time and they will see major improvements.
Your credit score is kind of like your financial report card. It tells lenders how you are faring financially and how you handle your finances.
A good credit score is vital to your financial future because it can tell lenders how likely you are to repay them on time and how much of a risk you are. Lenders will check that score every time you apply for a loan, a mortgage or a credit card. Any big purchases that don’t use cash require some form of credit, and with that comes a credit check. A score of 751 or higher is considered good, and that’s the sweet spot for good rates and credit eligibility.
5 Reasons Why Your Credit Score Is Important
1. You get lower insurance rates
Most insurance companies will run credit checks on you if you try to buy insurance. If your credit score is good, it can save you quite a bit on car insurance.
2. Protection as a buyer
A credit card can provide you with buyer protection, and that’s a benefit that cash and debit cards don’t provide.
3. Rent help
Anyone looking for a place to rent will likely be subjected to a credit check by the landlord. If you have a poor score, you might be turned down.
4. Reduced interest rates
As your score improves, the interest rates offered to you should improve. While it may not seem exactly fair, this is how it’s set up, for better or worse.
5. Job opportunities
There may be times where you are actually turned down for a job because of your credit score. That score can tell people how reliable you are, and they may use it to decide whether you should be hired or not.
Many articles will go in depth about all the things you can do to improve your credit score, but you really only need to do three simple things. There are tons of stuff that doesn’t matter as much that you can do to make incremental increases. Don’t worry about all that and focus on what will really make a difference. Keep in mind that none of these are quick fixes, and you will have to give them all time to see major change. That’s unfortunate, but it’s the honest truth, and you need to know it.
Step 1. Find Out What Your Score Is
You can’t do much to help your score until you know what it is. Compare it to trying to lose weight without knowing how much you weigh. It just makes no sense to do the one until you know the other. That’s how you gauge progress.
You can use CreditKarma.com to get your credit score for free. It’s really simple to understand using this site. Be careful of other free credit score sites, as many of them are not actually free. You should never have to pay for your credit report. The law actually allows you to access your report for free once a year.
Once you know what your score is, then you can start to do something about it. If you have a score that’s over 751, then you don’t need to change much, but everyone else should be working on the next steps.
Step 2. Pay Bills Automatically
Not paying your bills on time is the biggest money mistake most people make, when it comes to their credit score. Of course, you are going to forget to pay your bills sometimes, but that doesn’t have to cause you to miss a payment. You can protect yourself against your own shortcomings by setting up automatic bill payments.
Even someone who pays on time every time can have something happen to them that’s going to make them miss a payment every now and then. It’s a good idea to ensure that as many of your bills as possible are set up for automatic payments. You can set up to pay at least the minimum on all your bills with your checking account. You will never be late for another payment again. If you do overpay, you can get that money back by check, if you ask for it.
This is by far the simplest and most effective way to improve your score. You may need to give it some time before you see change, if you have not been paying your bills on time recently. However, once this is set up, you won’t have to be concerned about it anymore.
Step 3. Get More Credit
You should also know about your debt to credit ratio. That’s how much credit you have available compared to how much you are using. So, a credit card with a $500 balance that you are using $250 of gives you a 50% debt to credit ratio.
You want to aim for using less than 20%. The more credit you have available, the higher your score will be. It helps you set limits for yourself. Try not to max out the card for sure, but also tell yourself how much you are allowed to spend and don’t go over that amount. You can have your credit card company send you alerts if you do go over a preset amount. Most companies offer this service, so ask yours to set that up for you so you don’t go over by accident.
That 20% may not be enough for you, depending on how much you have available, and if that’s the case, then you may want to increase your available credit.
You can do this by either asking your credit card company to increase your credit limit or by opening another credit card account. It’s easiest to do the first one and simpler for you to keep track of everything if it is all on one card. Your credit score will benefit from it if you can make it happen. Your company might not grant your request, though. If that happens, then getting another card is a fine alternative. Just make sure you know what kind of card you are getting, and watch for annual fees and high interest rates. You really should not have more than three cards at once that you use.
When you are looking for the right card, consider these three things:
- The annual fee
- A reward system that you can use
- An interest rate of less than 15%
You might be amazed at how easy it is to get your credit limit increased. All it takes is a simple phone call, and if you have a good history with your company, you will likely be approved the first time you ask for the limit increase. They may ask you a few questions, so be prepared to give a little personal information such as where you were born and how much money you make.
Make a Change Right Now
Now that you know what to do, it is time to start doing it. The steps I have listed sound really simple, and it really is that easy to change your credit score for the better. Do just these three things and you can get a better score in time, every time.
Let me lay it out for you in a way that’s really easy to follow.
- Start by opening an account with CreditKarma.com. Get your score from them and put it someplace you can see it easily.
- Then set all your bills to automatic pay through your bank account. Set up to pay minimum balances only.
- Then you need to start paying down on your balances. Get your credit card balances under 20% as soon as you can. Student loans and medical bills don’t count for as much.
- After you start on that, ask your credit card company to increase your credit limit. You may also want to ask them to lower your rate while you are on the phone. If they won’t give you the limit increase, then get a new card.
Give it time before you check your score again. You won’t see change right away. Waiting about six months to a year will give it enough time so that you should see some change. Your score won’t change overnight, so be patient and stick to this plan.
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