Like getting in shape or building a home, some things in life take time and hard work. Improving your credit score is one of those things. Working to build good credit, or repair a history of bad credit, can make a huge difference in your life. Not only will improving your credit make it easier to make big financial commitments like a new car or home, it can also save you tens of thousands of dollars over time and take a huge amount of stress out of your life. If you have a bad credit score you’d like to improve, you can try some of these suggestions for ways to work towards good credit.
Pay off past due balances (and stop making late payments):
35% of your credit history and score is based on your payment history. This means that every time you’re late on a payment, it negatively effects your credit score. Paying off overdue balances can help remedy this, and every payment you make on time will work towards slowly but surely improving your score, so make sure you stay on top of your payments! If need be, you can often negotiate payment due dates to line up with your paycheck, which can help make sure that you’ll always have the funds available on time.
Start building good credit with a credit card:
An important part of your credit score is your credit mix, in other words, the different types of credit you have. If you’ve never had a credit card before, your credit mix is lacking. Many young people will open a credit card with the intention to only use it for set purchases (like gas, or books if you’re a college student). By sticking to a plan like this, you can build good credit without the risk of overspending and ending up with late payments. If you have bad credit, or want even more insurance that you won’t go over your spending limit, you can open a secured credit card. A secured credit card allows you to deposit a certain amount of money into the associated account, and can generally only charge as much to the card as you have in the account (making it function essentially as a debit card, but with the opportunity to build credit).
Limit your applications:
While opening one credit card can be beneficial in building good credit, applying for too many can hurt your score. Applying for a credit card (including the kind that is associated with a specific store) lowers your overall credit score by 3 to 5 points for up to a year. This might not seem like much, but if you apply for every store credit card offered just to get the discount at the register, these hits to your score can add up, especially around the holidays when you’ll probably be shopping more than usual. If you’re dangerously close to the bottom of a credit score tier, too many applications could be the difference between fair credit and poor credit.
Pay off debt (but don’t be ashamed of it):
Your total debt makes up almost 30% of your overall credit score, so paying off debts can go a long way to improving it. If you have debts that you’ve cleared, though, and particularly debts that you’ve cleared in good time, you should leave that on your report. Some people are under the impression that having a record of past debts on their report looks bad, but the truth is actually the opposite. Having proof of an old debt that you successfully paid off adds to your credibility, and helps build good credit. Instead of closing old accounts with good repayment records or trying to expunge repaid debts from your record, let them stay; They’ll serve as a testament to your reliability and improve your overall score.
Building good credit, or getting rid of bad credit, takes time and a serious, conscious effort, but it is definitely worth it.