There are various ways you can increase your creditworthiness to future financial establishments. Making on-time card payments can help build up your score and boost your credit history.
Newcomers to credit may benefit from piggybacking off someone else’s established track record by becoming an authorized user on one of the major consumer reporting agencies. Your payment history, utilization rate, and account mix all play an essential part in establishing your score – but what can you do to help it?
1. Pay Your Bills on Time
Paying bills on time is the cornerstone of building your score and it is one of the easiest steps you can take – most card companies allow users to set due-date alerts free of charge!
Your payment history accounts for 30% of your score, so making all payments on time is absolutely necessary to increase it. In addition, keeping utilization low – using only a fraction of available credit – will further assist your score; to achieve this you may pay down balances or request an increase from card issuers.
An effective strategy for improving your utilization rate is asking a family member or friend to add you as an authorized user to one of their cards. This method, known as piggybacking, works best if all three major bureaus receive positive payment history reports about you from that account holder.
In general, however, opening new cards or installment loans such as student or auto loans if you’re trying to improve your score is generally discouraged as new accounts often trigger hard inquiries into your report and can harm scores, and closing old accounts shortens length thus potentially harming scores further.
2. Keep Your Credit Utilization Low
After payment history, utilization is one of the two most crucial components of your score. It measures how much of your available limit you are using each month – both overall and per card account (such as mortgage loans or car loans).
Keep your utilization below 30% for maximum score improvement. There are various strategies you can employ to maintain this target utilization ratio – such as paying down balances or asking for an increase.
One effective strategy for lowering utilization is paying off outstanding balances as quickly as possible; both to avoid interest charges and gain an idea of how much debt you can comfortably carry. Just read this Credit Secrets review to see what I’m talking about. Tracking spending and creating a budget will help keep utilization within acceptable levels; many card issuers offer balance alerts which make staying on top of accounts even simpler, facilitating avoidance of high levels of utilization.
3. Avoid Applying for New Credit
Most financial experts agree that applying for new credit – whether cards or loans – can lower your score. That’s because creditors may conduct hard inquiries that appear on your report and can remain there for two years if multiple inquiries occur quickly, sending signals to lenders that you need money and pose higher risks than expected.
Opening new credit accounts will likely lower your average account age, which is another component in calculating your score. Only apply for credit when necessary and try to limit hard inquiries by applying only for loans and cards that report directly to major bureaus.
As I said before, your payment history makes up 35% of your FICO score, so paying bills on time is of critical importance. Missed payments remain on reports for seven years while even late payments that appear six months later still have a lasting negative effect. To reduce missed and late payments you can set up automatic payments and set reminders through your bank’s online portal or credit/loan providers to help reduce missed and late payments.
4. Review Your Credit Reports
Consistent and responsible behavior is key to improving your credit, such as paying your bills on time, keeping credit utilization low, and disputing errors – these actions will all help raise your score and build your standing with lenders.
Remember, it’s important to review your reports from each of the three national consumer reporting agencies on an ongoing basis. Each agency offers its own version of your report; therefore it would be prudent to request copies from each one periodically and carefully review them for errors that should be rectified.
Though there’s no exact timeline for raising your score, adding more positive information to your report may help it climb faster. Therefore, it is usually advisable to address negative information first such as late payments or debts sent into collections.
