This is a sponsored post from our partners CreditRepair.com. All opinions are 100% our own.
Like it or not, your credit score is important. Whilst it may not be the most important part of your finances, it’s definitely one to keep in check, especially if you are thinking of taking out credit soon.
It’s easy to forget about credit scores and how important they are, up until we want to do something like buy a house or finance a new car.
Don’t worry though, as there are plenty of practical ways that you can start to improve your credit score.
How to Improve Your Credit Score Quickly:
1. Pay on Time, Every Time
It sounds like a no-brainer, but you really do need to make all of your payments on time. Even if you are a day late, this will have a negative impact on your credit score.
When you apply for credit, creditors will want to look at if you are a trustworthy person to lend to. They want to know that you will be able to pay them their money back.
If you were going to lend someone money, wouldn’t you rather lend it to someone who you knew was going to pay it back?
Because of this, they will look at previous credit and if you have been able to pay it back, and on time.
Even if you are only a little bit late with your payment, this will still go down as a late payment, regardless of how close to the proper payment date you were.
2. Pay Attention to Your Credit Card Utilization Rate
Credit Card Utilization…what now? I know, it sounds confusing – but it’s simple when you look at what it means:
On your credit cards, you will have your balance (the amount of money that is currently on your card), and your credit limit (the maximum amount that you can put on your card).
If you want to figure out your credit card utilization rate, you just need to divide your balance by your limit.
The lower the percentage the better, as you want to show that you will not just spend all of the money that is available to you.
A good percentage to stick to in this case is 30% or lower.
3. Don’t Make Impulsive Decisions
The impulse decisions that we are talking about here are the ones where you are trying to work on your credit score but having an adverse effect.
I’m sure you will have realized that having a high amount of debt gives a negative impression on your credit score, and when you have paid it off it can be tempting to remove all traces of it from your credit file.
As we’ve discussed though, your potential new lenders will want to see that you are able to pay back credit. They want to see that you are able to make your payments on time and are an attractive person to lend to.
The main way that they can do this is to look at the previous credit that you have held and paid off – which is why it’s not a great idea to try and remove the debt from your credit file.
This also applies when it comes to closing credit cards that you are no longer using – you may think that it is better to close them because then they are off your credit file, but in actual fact by keeping them there it shows to lenders that you can be trusted with having access to credit but not using it.
Another thing that is tempting to do is to open up a new line of credit or to increase your credit limit to improve your credit card utilization rate. The best thing to do is to work on paying down your debt and making sure that everything is paid on time.
How to Avoid Hurting Your Credit Score
As well as working on the above things that will improve your credit score, it is important to know the things that will have a negative effect on your credit score, in order to avoid them.
1. Not Paying As You Should
This sounds like a no-brainer, but it really is that important. You need to pay the amount that you are asked to pay and on time.
As soon as you receive the bill, you need to pay it ASAP so that you don’t delay on your payment.
Paying your bills is essential, and needs to be a top priority over anything else – if you are struggling with your bills, it is time to create a budget and cut back on non-essentials temporarily.
If you are struggling with paying your bills, reach out to the company in question and let them know your situation. You may be surprised at how many companies are willing to help and put something in place when you are having financial struggles (just don’t make a habit of it).
2. Closing Cards With Balances
I know how it feels when you have paid off your debt – you want it out of your life as soon as possible!
As nice as it would be to cut up all of your cards and chuck them away as soon as it’s all paid off, it’s much better to practice to keep the card open.
Remember, potential lenders, want to see that you have had credit and paid it, and they also want to see that you can have access to credit and not use it.
Again, with the credit card utilization rate that lenders will be looking at – it is more favorable to have a credit limit with no balance because this will give you a great ratio. If you cancel the credit, then the ratio will change, and not in a positive way.
If you had a record that was so great with old credit cards, credit companies will still be able to view this information on your file anyway, as well as the fact that it has been closed.
3. Applying for Lots of Credit
When you apply for credit, the potential lender will do a hard credit check on you which will show on your credit file.
If you are applying for lots of credit, it will look as though you are not able to control your money which makes you very unappealing as a person to lend money to.
Do your research before applying for credit to see if you will be accepted or not so that you don’t have to end up applying to lots of different companies.
4. Ignoring Your Other Responsibilities
Whilst you may be focused on paying your main bills, there are other payments that you make that can end up having a bad effect on your credit score if you ignore those as well.
Examples of these could be things like overdue library books, unpaid parking tickets, childcare fees that are late. We wouldn’t typically think of these things as having a big impact, but they are often sent to a collection agency, which you will want to avoid at all costs.
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5. Maintain Your Financial Awareness
If you’re reading this and starting to panic a little because your credit score isn’t that great – don’t worry. Instead, use it as a motivator in pushing you to work on improving your credit and your financial situation.
This only needs to be a temporary thing and can be rectified by working on the tips in this article.
Additionally, if you have a good credit score already, that doesn’t mean that you should just sit back and leave it to do its thing. Maintaining a good credit score is just as important as working towards one in the first place.
A good credit score is a culmination of a bunch of good financial habits that it’s wise to follow in your day-to-day life anyway.
The things that will help you to gain a good credit score are the things that will benefit you in other areas of your life, and doing so means that not only will you not be nervous at looking at your credit report, but you also won’t be nervous to look at your bank account.
Final Thoughts on Improving Your Credit Score
Don’t give up! Building credit takes time, and it’s easy to get discouraged if you don’t see fast results. But the result is worth the work.
Having a great credit score can not only make it easier to get approved for credit with favorable terms (low-interest rates), but it can also help you score lower insurance premiums and get approved for a down payment when you go to buy your first home.