Personal Finance

How to improve your credit score: 5 smart strategies

improve your credit score

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Building a good credit score is like building a good reputation – it takes years of work and consistency. Lowering it is easy to do, it drops quickly if you stumble, yet it seems to take forever for it to rise when you’re doing things right. While there are loans for bad credit, you’ll want to work on improving your score for a better interest rate. We outline 5 smart strategies that will help you improve your credit score and build your credit reputation.

While you can’t improve your credit score overnight, there are a number of things you can do right now to help it move forward in the right direction as quickly as possible. This can help in future borrowing, whether it is for a home mortgage, to pay for home improvements and renovations or to buy a car.

5 smart strategies to improve your credit score

Check for Errors

As notes, millions of people have errors on their credit reports. That means that the first step for improving your score should be to request a free credit report from all of the major credit reporting agencies. Once the reports are in front of you, examine every detail. Take extra care to search for accounts that show late payments or unpaid bills. In addition to obvious errors, look closely for smaller mistakes, too, like a slight misspelling of your name or addresses you’ve never resided at, which can indicate identity theft.

If you spot anything that looks inaccurate, file a dispute. If you’re able to get errors removed, it can have an immediate, significant positive impact on your score.

Get Added as an Authorized User on Another’s Account

If you have a family member with a high credit score who is willing to add you as an authorized user to one of their credit cards, you’ll get an almost immediate boost to your score. And, you don’t even have to use the card at all – the owner of the account can hold onto the card without worry that you’ll rack up debt, which can make it easier to convince someone to add you as it doesn’t put their credit at risk. Just be aware that if circumstances change for that person and they’re unable to pay their bills or max out their credit cards, your credit will take a hit too.

Start Paying Off Those Balances

A key part of your score is your credit utilization ratio. Reducing your balances as quickly as possible is one of the best ways to boost your score quickly. If you have a card with a limit of $5,000, for example, and your balance is $4,000, your utilization is 80 percent. Getting it down to under 20 percent could raise your score dramatically.

Request a Credit Limit Increase

If you can’t make significant payments on your balances right now, there is another option, requesting a credit limit increase. Say you’ve maxed out a $1,000 limit card. If you can get an increase to $2,000, that immediately cuts your utilization rate in half – just remember not to use any of that additional credit, or it will defeat the purpose.

Make Payments Twice a Month

Many people use their credit cards to rack up lots of points in exchange for things like flights or hotel rooms. In the process, they may charge close to the credit limit of a card, thinking that if they pay it off in full each month, their score won’t be affected. But, that isn’t necessarily true. As your score is very sensitive to how much you’re charging compared to your credit limits, something known as a credit utilization ratio, if you make the payment even a day after your balance is reported to the credit bureaus, it could have damaging effects on your score.

The answer is to make payments at least twice a month, once before the statement closing date and once after.