Your credit score is more than just that three-digit number that determines whether or not you can secure a mortgage, qualify for a loan, or even rent an apartment. This is a number that can influence your financial health for years to come.
Having a low credit score can make it harder to get approved for new loans or lines of credit
Since our country is built on credit, it’s not impossible to get a line of credit with a low credit score. BUT you will be stuck with high-interest fees, and if you don’t have the cash flow to pay off the cards right away, you’ll end up paying a lot more than you bargained for.
Having a high credit score can help you make the right financial choices, and improving it isn’t as hard as you may think. While these tips aren’t going to skyrocket your score, it’ll bring it in the right direction. The bigger dents you can make, the bigger the impact.
1. Don’t make the simple errors that a lot of people make
Your payment history is one of the most important factors of your credit score. This means that if you have any late or missed payments in your history (even one) you’ll feel the impact. Something that I do is automate my payments.
This saves me some time, as the funds automatically draw from my checking account. If your cash flow is short, you should at least set up reminders on when you need to pay your bill. And a final little tip – if you do miss the date, you may still be able to protect your credit score. Often your penalties won’t be reported to the credit bureaus until 30 days after the infraction. Not the case with everyone, so make sure you ask.
2. Keep your credit utilization under control
Credit utilization is something that irks me a bit because if you want to make any big investments with a line of credit and pay off the balance gradually (say you have 0% APR promotion card), you’ll still be dinged if you are using up a lot of your total credit.
Credit utilization means how much of your available credit you’re using – for example, if your credit lines total $50,000 and you have a balance of $40,000, your utilization is going to be very high. Credit bureaus will start to see red flags if you are above the 25-35% range, so there isn’t that much leeway if your total line of credit (combined from all cards) is low.
If you have one or more credit card balances that are close to or at their limit, pick one to pay down. If you can’t pay it off all at once, keep paying more than the minimums and allocate more funds. Every month is a race against the clock on your credit score.
3. Pick some cards you have a good history with, and raise your limits
On paper, requesting a higher limit should be easy. In fact, in many cases, you can even request for one online. However, if your annual income is low and your balances are high, you may not be approved from the get-go. That doesn’t mean you should give up.
Call up your credit card company and explain why you’re making the request. Pick the cards that you have a good history with first because you’ll be able to make a great case for why you should get a higher limit. Pay down as much as you can with these cards first, as you’ll have more persuasion power when it comes to raising your limit.
Think of your credit score as your financial weapon
Only take advantage of your high credit score when you need it. Want to buy that house? Your credit score will go down, so make sure it’s high so you can get the best deal and then stomach the decrease. The same thing comes when you are investing in your business through lines of credit.
There are aspects of our credit system that seem unfair, and they are. Like, why am I penalized for only having a credit history for 5 years? But if you can keep your head above water and manage the basic maintenance and responsibility of owning lines of credit, you’ll come out ahead.
If you don’t have a credit card yet and don’t plan to use one, still get it and spend within your means. This way you can pocket the rewards and also accumulate a history so that you can use it to your advantage later when you want to make some bigger financial decisions.