Your credit score is more important than you realize. Without a good credit score, simple things can become a much larger hassle. For example, when renting an apartment many private landlords nowadays are requiring a good credit score, and without that you’re out of luck. With a bad credit score, taking out a mortgage loan can be very costly. While the people with good credit scores will save thousands, the people with bad credit scores will have to spend thousands more. Even a cell phone contract may be hard to get with a bad credit score, because cell phone providers want to be sure their customers are good for the money. It’s important to build a good credit score for the now and for the future. There are some simple ways to start building your credit score now.
Understanding Credit Score
Your credit score is decided by a number of different factors, many of which aren’t clear to the average consumer. It’s important to understand all of the factors to take into account when trying to navigate improving your credit. We’ve taken the time to break out what constitutes your overall score:
- Payment History (35%)
- Outstanding Balance (30%)
- Credit History/Age of Accounts (15%)
- Credit Mix (10%)
- New Credit (10%)
Set Up Automatic Payments
A simple way to build your credit score is by making sure that you don’t miss payments. As you can see above, this is the top factor taken into consideration when providing your score. Your payment cannot be more than 29 days late because once you’re 30 days or more late, then you can be reported to credit bureaus and a good credit score can slip away quickly. A simple way to avoid this is by setting up an automatic payment. This doesn’t have to cover the entire amount owed, with even paying the minimum being enough to keep it from negatively impacting your credit. Keep an eye out for membership or subscriptions that can be automatically charged on a credit card every month. It’s easy to forget about those and they can be costing you a good credit score.
Understand Credit Utilization
Your Credit Utilization is the percentage of your available credit that you’re approved for at any given time. For example, a $5,000 credit line with $3,000 outstanding would have a utilization of 60%. When trying to improve your score, its important that you try and limit the total amount of credit utilized across your accounts. Agencies consider utilizations of under 30% to be ideal for growing your credit score. By trying to pay off more than the minimum, or by keeping utilization low, you’re putting yourself on the right track for a better financial future.
One other method to consider is debt consolidation, which allows you to focus on one payment instead of trying to navigate multiple different accounts. Many times there are introductory offers that provide no or reduced interest for a period of time, letting you put all of your dollars to work in paying off your accounts.
Limit New Accounts
Another way to secure a good credit score is by limiting how often you apply for new accounts. Every time a new card is opened, a creditor has to perform a hard inquiry on your file, which means a creditor takes a long look at your file and determines how much risk you pose. These inquiries show up on your credit report and can have a strong impact on your credit score. On top of that, opening a new credit card will decrease the average age of your accounts. This can also hurt your score. So if you’re opening a new account, make sure the benefits outweigh the possibility of your credit score dropping.
Raise Credit Limit
Lastly, a simple way to improve your credit score is by asking for higher credit limits. The thing with credit limits is that as they go up, your balance remains the same. Nowadays most credit card providers give you the ability to apply for increases online, making the process much easier than in the past. This inverse jump in your credit line can improve your credit score. As many people get older, their income increases or you’ve shown years of creditworthiness, so getting a higher limit is a simple request. Credit utilization is a major factor in determining credit scores, so taking advantage of this can be a major advantage on your credit score.
A good credit score is imperative for a steady financial future. There are simple steps you can take to ensure that you have a good credit score. Even if you have a bad credit score, turning it into a good score is simpler than you may think.
