Credit scores are a sensitive topic for many people. The National Foundation for Credit Counseling performed a survey which indicated that more people would be more embarrassed to admit their credit scores than their weight (30 percent vs. 12 percent).
Having a healthy credit score is necessary if you wish to apply for loans to help finance big-ticket expenses such as a house or a higher education. According to Pat Curry, contributor with Bankrate, your credit score determines the interest rate the lender will charge you for the money that you borrow. The higher your credit score, the better your loan terms will be and the less interest you’ll have to pay.
If your credit score needs a boost, don’t despair. Here are six practical strategies to increase it.
According to Curtis Arnold, contributor with Forbes, the first step to improving your score is to dispute errors on your credit report. These errors could be late payments that you actually paid on time or accounts that aren’t yours. It could also be a debt that is shown as “outstanding” when you’ve paid it off. Make sure to scan your report for old debts that shouldn’t be on the report. As Curry explains, “Negatives are supposed to be deleted after seven years, with the exception of bankruptcies, which can stay for as long as 10 years.”
Pay down your credit card balances
Next, work on paying off your balances on the credit cards you own. Start with the cards with the highest utilization, as Bev O’Shea, contributor with Nerdwallet, advises. It can take just two months of paying down your credit balances to boost your credit score enough to attain the next tier of loan pricing, according to Curry.
Under-use your credit cards
It’s also wise to use the credit cards you do have sparingly, as Arnold states. How often you use your credit card and the portion of your credit line that you’re using impact your credit score. Credit bureaus calculate your credit score based largely on your “credit utilization ratio” (i.e. how much of your available line of credit that you’re using). Aim for a credit utilization ratio of 20 percent or less, as Elyssa Kirkham, contributor with Student Loan Hero, recommends.
Increase your credit limit
Another practical step is to raise your credit limit. “The higher [your credit limit] is, the lower any balance you carry will be in comparison,” as Kirkham points out. Be cautious about increasing your credit limit, though. It only works if you are disciplined enough to refrain from maxing out this more expansive line of credit that you’ve initiated.
Resolve past due bills
Per O’Shea, payment history is one of the largest factors that impacts your credit score. If you have any past due bills, it’s important to resolve them. Call the creditor, pay the amount you owe them, then ask them to rescind any reported delinquencies so they’re eliminated from your credit reports.
Set up auto pay
Make use of contemporary resources, like automated payment settings, to help ensure that you consistently pay bills on time. This feature is especially useful if you have multiple payments you’re in charge of, such as utilities, school loans, car payments, child care and mortgage payments.
By implementing these positive changes to your finances, you’ll be on your way to elevating your credit score to the level you need to secure loans with better rates.