It bears repeating: A good credit score opens the door to favorable lending options. It’s the first thing lenders look at when evaluating you for a mortgage, a car loan or, simply, another credit card.
A good credit score will do wonders to establish you as a reliable loan recipient who’s worthy of a good interest rate or annual percentage rate (APR).
A bad credit score, on the other hand, will, quite literally, cost you more in the form of higher rates. With a very low credit score, you might find yourself not even qualifying for the loans you desire or really need.
The good news is, you can start improving your credit score today. It’ll be a work in progress. It won’t happen overnight. And, it’ll take discipline to see it through. But, consider summer the optimal time to start saving and re-assessing your financial future.
There are a lot of free (or very, very low-cost) ways for you to enjoy summer and pocket extra savings. Use that extra cash on hand to pay down outstanding credit card debt, loans or put it away in a smart savings account.
As far as improving your score goes, here’s where you can start today.
Before you do anything else on this list, get a copy of your credit report
It sounds simple, but you can’t really do anything else on this list without having the latest report from the federal credit bureaus on hand. You can get one free copy of your credit report from each of the three major credit bureaus (TransUnion, Equifax, and Experian) once a year. Note that these reports will not actually have your credit score. Instead, you’ll want to comb through them to see if there are any errors or charges on the report. If there are, you can contact the credit bureau to clarify the situation.
You can then check your credit score. You’ll often hear about your “FICO score” or your “VantageScore.” FICO uses the information in your credit report to calculate a simple score that lenders can then use to determine where you fall on the scale of poor to excellent. VangtageScore is another credit score company that lenders might use.
The main thing to consider is that there are five main factors that affect your final credit score. These are: payment history, debt/amounts owed, age of credit history, new credit/inquiries, and mix of accounts/types of credit. Remember, it’s always worthwhile to dive into the details of your debt.
Next: Tackle your debt with the worst rates first
If you’re carrying a lot of debt, it can feel overwhelming to look at one, big, number. This is where you’ll want to dive into the interest rates and APRs for each credit card or loan you have. Find out which is the highest and tackle that amount of debt first. Calculate your monthly minimums on other cards/debt and then see what’s the maximum amount you can afford to pay on your costliest card.
How much debt you carry factors into 30 percent of your FICO score. While paying off a card completely is the ideal situation, you can aim at least to have a balance of no more than 30 percent of the total credit line available. If you have $3,000 in credit available, that means you should never have more than a $900 balance.
If your credit score is really poor, consider a secured credit card
If your credit score has taken a deep dive (for whatever reason), you’ll want to get creative with how you can show you’re a reliable customer. Banks often have what’s called a secured credit card. This is a type of credit card where you front all or a portion of the available credit balance for a card. You can then use this card to make regular payments on to establish a history of good payments.
Automate those payments and check out your closing dates
Missed or late payments on anything will hurt your credit score significantly. (It accounts for 35 percent of your overall FICO score.) Luckily, older missteps on your accounts count for less. Commit to staying on top of your payments today by marking the due dates for each card or other debt on a calendar.
Then, go ahead and look into when the closing date is for your account. You’ll notice you usually have a grace period between the closing date for your credit card and the due date for a payment. If you’ve racked up a lot of charges on a low-balance card, it’s in your best interest to make a small payment by the closing date.
Your credit utilization rate (how much you use out of your available line of credit) shouldn’t exceed 30 percent. Make it a point to tackle that by the closing date to avoid having your credit score take a hit.
Simple steps, but keep at it and you’ll see your score slowly improve in the coming months. Just imagine, this time next year, you can sip margaritas poolside knowing your debt is lower and your credit score is higher!
