When you’re saddled with a low credit score, it can feel like you’ve got a scarlet letter on your chest. Thankfully, those three digits aren’t floating above your head, revealing your score for all to see. While your score is private, though, the day will come when you’ll have to disclose it to interested parties.
That’s because your credit score is a critical tool financial institutions use to determine if you’re a safe bet. Plus, providers of life necessities like housing and utilities rely on credit scores to do things like approve leases and waive deposits. This unavoidable truth means one thing: You’ve got to get your credit in line.
Whether you’re recovering from a string of poor credit choices or just starting to establish a credit record, take comfort. With deliberate effort, you can make major improvements to your credit score.
1. Ensure Your Credit Profile Is Complete
Your credit score takes into account five factors, each weighted to reflect your potential financial responsibility. While some factors certainly carry more weight, it doesn’t mean you should ignore any of them. Just as you should complete all the questions on an exam, so, too, should you flesh out your credit profile.
Payment history, credit utilization, credit mix, account age, and new credit are the terms you’ll soon be familiar with. Depending on how long you’ve maintained credit, your personal credit profile will be different. Those who’ve had loans, credit cards, or other financial products will have years of history. People who have not used credit may not have a credit record, which means that it’s time to build one.
Whether you’re looking at a blank history or one with pages of details, you should strive toward completion. Build up your record of responsible, on-time payments by setting your account to automatically pay at least the minimums owed. Even when life gets busy, you’ve built in protection that will improve your on-time payment history. That constitutes 35% of your score, so it’s important to avoid late payments, even as an honest mistake.
If you need to establish credit, consider a credit builder card, which often does not require a credit check. This financial tool can help you demonstrate on-time payment history and well-managed balances without subtracting points for new credit. No matter where you are in your credit journey, ensure your financial habits contribute toward your score.
2. Get Your Balances in Check
Second only to on-time payment history, your credit utilization rate is both heavily weighted and highly malleable. This rate is the percentage of your total revolving credit that you’re using at any given time. One weekend shopping spree can surge your credit card balances and take down your credit score with it. If you’re regularly tickling your cards’ credit limits, you’re definitely hurting your credit score.
The three credit reporting bureaus, Equifax, TransUnion, and Experian, ascribe 30% of your score to credit utilization. Remember that figure when you review your balances — it’s also the percentage beneath which you should try to keep your credit utilization. So if you have a total credit limit of $6,000, aim to keep your balances below $2,000. Any balance higher than that will start to bring down your score.
If you’ve struggled with credit card debt, this is going to require behavioral changes. Review your regular spending habits, even if your bank statements make you cringe. What’s most important is understanding where your sticky spending spots are and then creating a plan to manage them.
Once you know where your money has been going, craft a realistic budget. Allow for some fun, which will help you keep up the momentum toward paying down debt. Each month your credit utilization decreases, the better your credit score can be. As you work your plan, see whether your credit card provider will increase your credit limit. By increasing your total available credit while making progress toward paying down balances, you can score a credit utilization win.
3. Make Sure Your Credit History Is Accurate
There’s nothing like finding a $20 bill in your winter coat the first time you wear it for the season. But some financial surprises don’t result in a little extra folding money. Sometimes, it’s your credit history that unearths a surprise, and not always a good one.
Frequently, a simple request for your free credit report sends you back to a time when your financial choices weren’t great. Whether you’re face-to-face with a forgotten store card, a charged-off checking account, or another mishap, get in touch with reality. While you can’t undo your past poor choices, you can make smarter moves today.
Print out your report to force greater focus when reviewing your credit history. Highlight anything that gives you pause, and check your records for accuracy. If anything looks out of place, check first with the financial institution in question. Errors can occur, so if you find one, work with the reporting institution to resolve it.
If you’re unable to sort out an error with the financial institution, file a dispute with each bureau. The process of cleaning up your report’s accuracy can take months, so be patient. Continue to work your credit improvement plan as you attempt to correct an inaccurate report.
Managing Your Credit Score Is a Lifelong Responsibility, But It Doesn’t Have to Be Hard
Wrangling your credit score is as essential as going to the dentist. It can be a nuisance and sometimes scary, but avoiding it altogether holds the possibility of life-long damage. But unlike your skipped dental visit, living with a bad credit score can leave you sitting on the sidelines of life.
Don’t cheat yourself of the ability to say “yes” to the home of your dreams or a trip of a lifetime. Give yourself the freedom to make those choices by managing your credit score. When you serve as a good steward of your finances, you’ll open up a world of possibilities.
