Some bits of financial advice are a dime a dozen, especially when it comes to your credit. Matter-of-fact tips like “make your payments on time” and “stop getting into unmanageable debt” should go without saying. Of course, if you’re still struggling in those areas, there’s no better place to start.
For most people, however, financial advice needs to transcend the clichés to be truly helpful. What this guide offers is some advice that you may have heard before but not tried yet. These recommendations have been proven to be successful time and time again. Now it’s time to try them out and see for yourself.
1. Use a Credit Builder Card
The type of credit card you use can honestly be a big deal when trying to raise your credit score. For example, individuals with low credit scores or nonexistent credit often benefit more from a credit builder card. This is an option many people don’t consider or even know is a possibility.
A credit builder card is very similar to other cards with a few minor, but notable, differences. The major distinction is that the amount of money you put down as a deposit determines your line of credit. This eliminates a lot of the risk lenders face when working with consumers with poor credit histories. The deposit can be used to pay off unpaid balances in a pinch.
You won’t receive the same rewards that are offered by other credit cards, but you can apply for those later. A credit builder card, as the name suggests, will help you build your credit. Once you get your score where it needs to be, you can qualify for better loans and lines of credit. After all, you have to start somewhere, even if it’s at the bottom.
2. Keep Your Utilization Rate Under 30%
Credit companies don’t always explicitly mention credit utilization rate to their consumers. However, this is a very important factor in determining your credit score, and it’s crucial you understand what it means. Your credit utilization rate has a significant impact on your overall credit score, for better or for worse.
As a rule of thumb, you should try to keep your utilization rate below 30% whenever possible. This simply means that no more than 30% of your overall available credit is being used at one time. For example, you may have three cards with a total credit line of $10,000. To stay under 30%, you should keep your combined balances below $3,000.
Now that you’re aware of what credit utilization entails, you can make a conscious effort to maintain it. For starters, avoid maxing out your credit cards. Setting up automated payments may also help keep your utilization rate low, even when you’re not actively monitoring it.
3. Leave Old Accounts Open
You may have an old line of credit (like an old department store credit card) that you simply do not use anymore. Think twice before closing this line of credit. There are two reasons why it could be beneficial to leave it open.
The first is the credit utilization rate mentioned previously. By expanding your total available credit, that old credit line helps to keep your utilization rate low. If you close it, your total credit line will decrease, and you won’t have as much wiggle room.
Second is the length of your credit history. Typically, the longer your credit history, the better. A longer history shows creditors and lenders that you have more experience managing finances. Close that old account, and your credit history will appear to be much shorter than it actually is.
4. Request Additional Reports
Some of your good financial habits might not be reported to the major credit bureaus. If you’re a renter, for instance, those monthly payments often go unreported. However, if you want your rental history to be included in your credit report, talk with your landlord. They may be able to report rental payments directly to the credit bureaus each month.
Additionally, there are a few third-party resources your landlord or rental company can use to report to the credit bureaus. If you’re always on time with your rental payments, this should boost your credit score nicely. Rent reporting will provide another example of your financial responsibility and give more diversity to your credit reports.
5. Don’t Apply for Too Much Credit All at Once
In your efforts to increase your credit diversity or lower your credit utilization rate, be sure not to go overboard. While it can certainly be beneficial to open up a new credit card or take out a loan, don’t get carried away. Applying for too many lines of credit in a short period of time might actually hurt your credit score.
For starters, every time you apply for a new loan or credit card, they will run a credit check. A hard inquiry can lower your credit score by a few points. Imagine what could happen if you repeat this multiple times in a row before allowing your credit to correct itself.
So many applications back to back can be a red flag for future lenders as well. People normally don’t need multiple credit cards in a short time period unless something has gone terribly wrong. It’s better to be patient and allow your credit score to raise itself more naturally.
Using any of these tips can help you to lift your credit score to new heights. By continuing to find new ways to improve your finances, you’ll soon be able to meet all your personal goals.