Credit- everyone has it, but few understand how it works and why it’s so necessary.
In a nutshell, your credit score is an indication to lenders on what type of borrower you are. Credit scores can range from as low as 300 up to 850. The higher the score, the better your credit, and the less risky you are to a lender. A low credit score can wreak havoc on your life, affecting your ability to buy a car, a home, or even land a new job.If you have a low score, it can seem like a daunting task to improve it.
Here are a few, simple things you can do to improve your credit score. Keep in mind that this process takes time and will not happen overnight.
- Pay your bills on time. This may seem like a given, but late (even by just a few days) payments are the number one thing that can lower your credit score. Set up autopay for whatever bills have the capability as it’s one less thing to think about each month. In general, utilities, mortgage, and other recurring expenses offer this capability. If autopay is not available, phone and calendar reminders work as well. If you’ve recently missed a payment due date and this is abnormal for you, you can try writing a letter of goodwill to the lender. Describe what happened, point out your history of paying on time, and ask that they remove this from your credit report. It may or may not work, but it is worth a shot.
- Pay off balances. Another top determining factor for your credit score is the amount of your available credit that you are using. If it’s greater than 30%, that is considered too much, and this will lower your score. Make a list of all your creditors and balances for each. Then, focus on paying them down one by one. Start with the smallest balance and work your way up. The more credit you free up, the higher your score will become. Moving forward, commit to using one or two cards for everything so your credit report isn’t weighed down with multiple smaller balances.
- Consolidate your debt. Consider transferring all your balances into one. Many credit cards offer free balance transfer upon account opening (including LCU’s VISA credit card), or consider taking out a personal loan from Lowland Credit Union to pay off your higher-interest cards. This will not only save you considerable money on interest, but it will allow you to focus on paying down one balance instead of multiple.
We hope these easy-to-follow tips have given you an idea of how to increase your credit score. If you can commit to these three things, your credit score will improve over time.