7 Ways to Improve Your Credit History

Credit is a confusing thing that many people don’t get and don’t care to understand. But even so, it is one of the most important aspects of your finances and your financial freedom. Unfortunately, many Americans can’t manage their money responsibly and their abysmal credit scores show it. A bad credit score can prevent you from getting a loan, buying a car, and keeping a roof over your head. The good thing is it’s never too late to get your credit score in check and bounce back from your bad financial decisions of the past. Check out these seven ways to improve your credit history:

1. Pay on time:

   

   It doesn’t get much simpler or easier than this: pay on time, see your credit score go up. Paying your bills on time is the most important thing you can do to improve your credit; it accounts for 35% of your score! Late payments can lead to universal default, which allows credit card companies to raise the interest rate on their cards. With today’s technology and conveniences of automatic bill payment, there’s no reason why you should ever miss a payment. Mark it on the calendar now!

2. Manage your money responsibly:

   

   Practicing responsible money management is the first step to improving your credit history. It will help you spend smarter and save accordingly. Creating a budget and adhering to it will also help you get ahold of your finances and tackle credit card balances and other debts that have negatively affected your credit score. While you’re repairing your credit, try to avoid using your credit cards as much as possible. Use cash or a debit card to avoid adding to your debt that you’re working so hard to pay down.

3. Pay off debt:

   

   Paying off debt is a crucial part of improving your credit. The more you chip away at credit card debt and loans, the better off you’ll be in the eyes of creditors and lenders. Your credit score may not immediately reflect the past payments you’ve made, but if you continue to make timely, above minimum payments, you can expect to see improvements to your credit score in the coming months or year.

4. Carry a balance of 30% or less:

   

   An important way to build a better credit rating is to get your utilization rate, which is the credit-used-to-credit-available, down to 30% or less. It is beneficial to keep a credit balance of 30% or less because it shows creditors that you can manage a revolving account responsibly. To do so you’ll want to calculate your utilization rate at each billing cycle and pay the necessary amount to reach a ratio of 30% or lower.

5. Leave accounts open:

   

   Just because your credit score is less than stellar does not mean you should go close all of your credit card accounts. Many people want to rid themselves of delinquent or unused credit cards to stop overspending, but this almost always ends up hurting your credit score more than helping it. If you close a card that still carries a balance, you’re in for some trouble. This debt does not just disappear and it will most likely come back to haunt your credit rating. Before you even consider closing a credit card, make sure all balances are paid off and that closing the account won’t negatively affect your credit.

6. Minimize applications and inquiries:

   

   As you work to repair your credit score, you will want to minimize the number of times you apply for loans and credit cards. Every time a creditor or lender makes a credit inquiry, your score may be negatively affected. Opening a new credit account gives you a younger credit age, which can hurt your credit score because there’s no history on this account and it’s an added risk for creditors to consider.

7. Get a free copy of your credit report:

   

   If you’re going to rebuild your credit history, you have to know where to begin and this is only possible by looking at your most up-to-date credit report. Under federal law, everyone is entitled to one free credit report from each of the three main credit reporting agencies per year. Equifax, Experian, and TransUnion will analyze and report your financial behavior, credit and loan history, inquiries, collection records, and other information that will be used by creditors, lenders, insurers, employers, companies and others to evaluate your finances and determine your rates. Once you have this information in your hands, you can review your credit report and determine what needs improvement.

Taken From The Best Degrees