Your credit score is one of the most important financial numbers associated to your name. If your confidence is low because your score is poor or average, don’t let yourself become defeated and don’t give up. Only YOU can directly improve your credit score by becoming dedicated to doing so. Having a low credit score is costly because it reduces the amount of financial opportunities and you will receive higher interest rates compared to a person who has good or excellent credit scores.
Now, to set realistic expectations give yourself 6-12 months before you expect significant improvement in your credit score. I personally used all of the following strategies once I graduated from college and my score increased by 100 points within one year. So, here are my tips for you to get started with your strategy:
1.Stop applying for more credit!
If you are constantly getting denied and your credit score is already at an average or poor classification, make sure you stop inquiring for more credit. Hard inquiries do affect your credit score, regardless if you get approved or denied.
2.Check your credit reports for inaccuracies.
Get your annual credit report to have a clear picture of your credit score and all of the accounts and debts that are being reported to the credit bureaus. Here is what you should look for:
- Identity errors. For instance, an account that belongs to someone else who has the same name or accounts that you never opened.
- Closed accounts that are still reported as open
- Accounts that have been reported late or delinquent when in fact you have paid them on time and/or in full
- Same debt and accounts that have been listed multiple times
- Incorrect credit limits
- Incorrect current balances
- Delinquent accounts that haven’t been removed after 7 years
3.Secured credit card
A secured credit card requires you to deposit cash as collateral for the account. For example, you deposit $500 and the bank holds on to that cash to secure the $500 line of credit that they will give you. After 6 to 12 months of perfect management of the credit card, contact your bank and ask them to transition it to a non-secured credit card and to return your $500 deposit. This will help boost your credit and improve your relationship with the bank. Learn more about how to leverage credit cards.
4.Keep your utilization rate low
Your utilization rate is the amount of credit your are utilizing on a month to month basis against the amount of credit that is given to you by your lenders. The trick here is that you want to keep your utilization rate ideally between 10% – 30%. If you have a $5,000 limit with a credit card, do everything possible to keep your statement below $1,500 (less than 30%). Coincidentally, the utilization rate accounts for 30% of your credit score calculation. Keep this in mind, the magic number is 30%.
5.Improve your payment history
Don’t be late with your payments! Even if its minimum payments. Your on time payments and overall payment history accounts for 35% of your score. This is the highest variable that is being calculated to formulate your credit score. By making your payments on time, the lenders will consider you to have less risk of defaulting.
6.Become an authorized user on a credit card
Find a family member, a partner/spouse, or a friend who is responsible with their credit and who is willing to help you with this strategy. Ask them if you can be added as an authorized user on their credit card. You want to make sure that they maintain low balances on the account, the account is always paid on time, and that they have long history with that account. These factors will definitely help your credit once it is reported to your credit report.
7.Prioritize paying down what you owe
Once you get your credit report, look at all of the accounts and debt balances. Take note of when those payments are due, how much the payments are and how much the interest rate is. You want to prioritize the highest balances with the highest interest rates. Pay above the minimum payment for those high balances and make minimum payments for the smaller balances. Once you’ve closed out that high balance account, use the same strategy for the other accounts and balances you may have. If your cash is running tight and the payment due dates are not helping, learn how to optimize your cash flow and ask your lenders to switch the due dates!