Take steps to improve your credit score
Image Source: Flickr CC User Ozzy Delaney
For many people, figuring out how to raise their credit score is a mystery. That’s because they don’t understand what factors into the score, how it’s calculated and how to manipulate those factors in their favor. In fact, once you understand how scores work, you can take proactive and simple steps toward improving your credit score. Here is a look at five steps you can take to raise your score through a tested and proven process.
This seems counterintuitive. The reason you want a higher credit score may be so that you can get credit like a car loan or mortgage. However, you have to start somewhere to build up. If your credit score is middling to low, you’ll likely need to start with a secured credit card. If your score is average or a bit higher, you can start with an unsecured card.
#1 Get Credit
Store cards can be a middle ground between secured and unsecured cards because they can be easier to obtain than unsecured credit cards but better than a secured card. However, interest rates are usually higher for store cards – and also for any card, secured or unsecured, that you get while your credit score is low. However, that doesn’t matter if you use the line properly.
Utilization is important when factoring your credit score – it's the amount of credit that you actually use. However, utilization is calculated at the time your statement closes. For instance, if you have a $300 credit line and when your statement is issued, you have a $200 balance, that’s a 67% utilization, which is high and can wreck your credit score even though your card isn’t maxed.
#2 Use, but Keep Utilization Low
Ideally, you should pay off your balance before your statement cuts. You can monitor your balance online and make a payment before the monthly closing date, and the statement will issue with a zero balance. That means no interest charges and a higher credit score. You don’t want to simply NOT use your cards, though, because then the creditor won’t bump your credit limits, which is important as well.
Using your credit card so that the creditor sees you’re active is the best way to get regular credit line bumps. The higher your credit line, the better your credit score will be. However, you also don’t want to carry balances. This should be your benchmark: if you can’t afford to pay cash for something, don't buy it with plastic.
#3 Don’t Swipe if You Can’t Pay Cash
Using your card for gas or groceries is often a smart solution. Since it’s money you have to spend anyway, use your card for it, then turn around and pay it off in full. You can pay on your credit cards multiple times during the month using online bill pay or through the card issuer’s website. Never, ever pay late – that causes stiff late fees and penalties. And never, ever go over your limit – that tanks your score, maximizes interest, and triggers more fees.
Credit card debt can be a slippery slope, particularly if you’re coming out of a bankruptcy. Many North Carolina consumers who have filed bankruptcy before are gun-shy when it comes to credit. They often want to avoid it altogether because they’re scared to get in over their head again. This is understandable but is not the path to improving your credit score.
#4 Don’t Accumulate Debt
You don’t want to rack up credit card debt, but you have to use your cards to keep your credit limits climbing and your credit score improving. Use your cards, but be cautious how you do it. Paying bills with your cards can be one way to ensure you’ve got utilization without racking up debt. Most utility services will allow you to pay bills with plastic, which you can in turn pay off online ASAP.
You should be monitoring your credit score constantly – there are a number of free and low-cost monitoring services you can sign up for to keep track of your score. Watch for errors, illicit activity, and improvement in your score. As your score climbs, you should apply for new cards with better terms. Why? One of the aspects of your credit score is new credit accounts.
#5 Get Better Cards and Monitor Your Score Constantly
In a nutshell, you can have lots of credit accounts, all in good standing but your score can fall if you don’t occasionally apply for and get new lines of credit. As your score increases, apply occasionally for new cards but also keep your old lines of credit open. Closing older cards can drop your credit score because the age of your average credit accounts also counts in your score.
Getting and keeping a better credit score isn’t something you can allow to happen on its own organically – it’s something you have to work at, particularly after you file bankruptcy. To get help with improving your credit score after bankruptcy, contact Credit Score Keys today.