Credit scores are one of the most important pieces when it comes to becoming financially stable. Having a reliable credit score is a little bit like having a decent car. It’s easy to take it for granted until it breaks down, then you really notice what it’s like to not have one.
Having a good credit score can make it much easier for you when it comes to big life decisions. This is because big life decisions are usually financed by loans (buying a house, going to college, etc.). These loans are usually approved based on your credit score, among other factors. Having a good credit score can help you get access to things that will improve your life. Because of the importance of credit scores, we’ve put together this list of 6 ways to raise your score.
Get a credit card
Credit cards are commonly misunderstood and misused. Often times, you hear horror stories of people abusing credit cards and getting loaded with tons of high-interest debt. On the other hand, some people avoid credit cards like the plague to make sure they don’t get any debt.
Credit cards are definitely a valuable tool when used the right way. What do we mean when we say to use them the right way?
- Only get 1-3 credit cards.
- Make sure that you pay them off in full every month.
- Don’t spend money that you don’t have.
- Don’t carry a large balance.
If you follow these guidelines, credit cards can be very effective when it comes to building a good credit score. If you just avoid getting a credit card, then you won’t have a chance to build up a history of paying your debt.
This applies to credit cards mainly but can also be relevant for other types of debt. For example, having lots of outstanding student loan debt can negatively impact your credit score. In order to improve your score, you should make an effort to pay down this debt as much as possible.
This can be easier said than done. However, let’s say that you’re trying to purchase a home or plan to buy in the next 5-10 years. If you make an effort to pay down any existing debt you have now, it can help you get approved for a better mortgage. This can help you live the life you want for years to come.
Establish a good credit history
We mentioned this briefly already but wanted to go more in detail. By opening a credit card you have the chance to build a credit history. Basically, all the bank wants to know before lending you money is “are you someone who pays their bills on time and will you pay us back.” To answer this question, they evaluate your credit score. If you have a good credit score, then the answer is usually yes.
One of the best ways to prove to the bank that you pay your bills on time is to do just that. Open a credit card and use it frequently but also pay it off on time. If you do this consistently over time, it will show future lenders that you’re reliable and responsible with money.
Pay your bills on time
Apart from just a credit card, make sure that you’re paying all of your bills on time. Credit scores can pull information from all different types of sources. If you have lots of bills that you pay, make sure that they are set up to be paid automatically. This can help prevent forgetting to pay, which may ding your score accidentally.
Don’t close unused credit cards
As strange as it may sound, make sure that you don’t close any unused credit cards. This can sometimes be seen as a red flag for you. It can make it seem as though you aren’t responsible or maybe can’t handle any more debt.
Whatever the reason, closing an unused credit card can ding your credit score. Try to avoid it whenever possible. This is also why it’s a good reason to avoid opening too many credit cards. All you really need is 2-3 cards. If you start opening and closing them unnecessarily, you may actually be hurting your score without realizing it.
Keep a low balance on credit cards
This is our last point on credit cards. Even if you’re making the minimum payments on them, make sure that you’re not carrying large balances. When you carry a long balance you technically owe the bank money. Even if you’re on top of your finances and have the money to pay back, on paper it will look like you are unable to meet the payment and can ding your score.
We know that a lot of these things may seem insignificant. However, doing a lot of little things consistently over time is what can take an average score to a good score or a good score to a great score. The difference between an average score and a good score can be the difference for you when it comes to getting approved for your next loan!
We hope that you’ve enjoyed this article and it has helped answer some questions when it comes to how to raise your credit score. If you’ve found this post valuable, please subscribe below to get alerted of new posts.