If you’re staring at a less than stellar credit report, don’t let it ruin your week. Instead, take action to improve your score. Become educated on the five factors that credit reporting bureaus consider when calculating your credit score. Once you understand the rules of the game, you can implement these helpful tips. Soon your score can be soaring, and you’ll be smiling.
1. Establish the Right Credit Mix
Just like music needs a beat and a melody, your credit mix needs more than one type of credit. To earn a higher score, you need to have both installment and revolving credit. Auto loans are examples of installment credit, where you pay a fixed monthly payment until the balance is fully paid. Credit cards are revolving lines of credit that you can use up to the maximum limit.
Both types of credit are essential to earning you a great credit score. Having both revolving and installment credit, and showing responsible payment history, go a long way to prove your creditworthiness. If you need to enhance your credit mix but aren’t sure if you’d qualify for a credit card, consider a credit builder card like Chime’s.
These cards often waive a credit check and can be a great way to begin showing responsible credit usage. Once you’ve got a good representation of both installment and revolving credit, don’t overdo it. A few accounts of each type, paired with on-time payment history, should be enough to reassure potential lenders of your reliability.
2. Make Sure Your Payment History Is on Point
We’ve all spaced it and missed a bill payment. But have you made a bad habit of being casual with your payment due dates? If you’ve slipped into some sub-par borrower behaviors, now is the time to turn things around. Your payment history determines 35% of your credit score, and paying on time is paramount.
Pull out all of your credit card, loan, and bill information. Review each of the due dates and make note of any minimum payment rules. Jot down each bill and amount on a calendar to get an easy view of the payment commitments you’ve made. Now that you can see what you owe and when, set up automatic minimum payments.
The easiest way to ensure your payment arrives on time is to schedule them using the lender’s website. While your bank may offer online bill pay, its delivery times to different lender types may vary. Control for variables and err on the side of caution by scheduling directly with your lender. Using automatic payments will help you pay on time, every time, and can eliminate bill-paying panic.
3. Be Mindful of Your Credit Usage
It’s so easy to swipe for the things we want and need. But when does the ease of use start being a bad thing? Credit usage can easily get out of hand when you buy more than you can repay within the statement period. This bad habit often leads cardholders to carry a balance that starts racking up interest charges.
Over time, this carried balance can balloon to an amount that tests the total credit limit. When your credit usage surpasses the 30% mark, credit bureaus begin to count this as negative toward your score. Using over 30% of your available credit can indicate that you rely on credit — not cash — to pay for life’s needs.
Aim to use less than 30% of your available credit across all of your cards. While you’re managing your usage, ask your lender to raise your credit limit. This addition to your credit limit isn’t meant to be spent. Instead, this enhanced limit can drive down your total credit utilization, improving your appearance to the credit bureaus.
4. Aspire to Be a Longtime Account Holder
Great relationships stand the test of time, and your relationship with your lenders is no different. Resist the urge to play credit card games and instead aim to keep a few cards for the long haul. Your credit history length is the average age of all your credit accounts, and it makes up 15% of your credit score. The longer you maintain a credit account, the higher your credit age will be.
While some loans have a natural end, like an installment loan, others are more open-ended. Revolving credit lines like credit cards can help boost your credit age, but they can also draw it down. If you typically open a new card whenever an offer arrives, it’s time to stop that toxic practice. Each new line of credit displays only a few months of payment history. Your older cards show a larger picture of your borrower habits.
In addition to being mindful of when you open new cards, the same rule applies to closing them. You may be anxious to get rid of that entry-level card you got years ago, but take a pause. Canceling that card eliminates it from your account age calculation and can cut down your access to credit.
Instead, see whether you can upgrade your card to one that better suits your needs. If not, keep it in your rotation by using it to pay recurring expenses like your wireless or subscription services. Since these bills are typically the same month to month, consider scheduling an automatic payment to cover the monthly balance. This way, you won’t miss a bill, and you’ll reap the rewards of your long-standing customer history.
5. Think Before You Pursue New Credit Lines
Online applications have made shopping for new credit cards a snap. Because it’s so simple, it can be easy to get caught up in the excitement of a great offer. Before you click submit on a new credit card application, consider whether now is the right time for new credit.
Each time you apply for new credit, the loan or card issuer checks your credit history. In addition to reviewing your track record, this check is logged as a “hard inquiry” on your report. Hard inquiries remain on your credit report for two years. These inquiries typically cause a dip in your score for a few months.
Would-be borrower beware — too many inquiries in a short period of time is not a good look. Shopping for credit cards en masse can make potential lenders concerned that you’re reliant on credit to pay for the basics.
Instead, be mindful of when you shop for credit. Only submit applications you’re confident you’ll be approved for and for loans you really need. Your careful practice here may help keep your score and approval odds high when you next shop for a loan. Boosting a bad credit score may take time, but the effort you put into correcting your credit is worth it.
Implementing better practices, being mindful about your choices, and understanding how credit works are life skills you’ll keep forever. With a better score to your name, you’ll open up better opportunities when you shop for credit. Thanks to your efforts today, you may save money on interest and worry less about being approved in the future.