Boosting Credit Score
Like it or not, your credit score – that invisible number dictating your creditworthiness – will follow you through the course of your adult life. This score is a way for institutions to determine how responsible you are with your money, and how much you can be trusted with their credit. Even your ability to obtain a credit card at all (along with the financial limitations placed on the card) is determined by your score. A negative score may flag you as a liability, inhibiting your likelihood of qualifying for a loan or obtaining lower interest rates.
If you check your credit score and discover that it isn’t as strong as you’d like, there are certain steps you can take to boost the number.
1. Start with the Basics.
The first (and most necessary) action you should take is to begin paying your bills on time. Prompt bill payment demonstrates reliability and circumvents the negative marks that contribute negatively to your score. You can encourage this type of behavior by keeping a schedule – knowing when certain bills must be paid is the first step to paying them on time. Throwing a bill on the kitchen table and forgetting about it, on the other hand, is the first step towards incurring negative marks on your credit. Stay organized, pay promptly.
2. Check for Errors.
When you request your credit report, make sure to scan it for any items that may be incorrect. If there is an account erroneously linked to your name, for example, it may be the source of your problems. Be thorough, and don’t assume the report is perfect. Eliminating these inaccuracies can boost your score.
3. Use the Buddy System.
If you’re in a bind and are looking to improve your credit quickly, a second party can add you to their credit account. Once added as a second card holder on a friend’s account, for example, your score will reflect their payment history. Their noted consistency is transferred to you, and your score can increase. Remember, this is different from simply being an approved signer—you must actually be listed as a cardholder.
4. Keep Existing Accounts.
Keep in mind, longevity is important when it comes to your credit score. If you have an old, existing account that has been paid off, don’t close it. An account with no activity (but with longevity and no negative reports) is more beneficial to your credit score than a new account.
5. Learn to Manage Your Debt
Many people ask whether or not it’s more beneficial to pay off your credit card in full each month (if possible) or to make payments toward the balance. The answer? Paying your bill in full each month is your best bet. However, not paying the full balance isn’t going to negatively affect your score as long as you’re paying the minimum (or higher) amount. This act is, essentially, managing your debt, and consistently managing your debt is what contributes to a higher credit score.
No matter what course of action you decide to take, keep in mind that credit is something that builds up over time. Responsible decision-making and careful management are the best credit-boosting tips of all.
Angie Picardo is a staff writer for NerdWallet, a personal finance website dedicated to helping consumers find the best credit cards.