8 Ways to Improve Your Credit Rating
If you want to be taken seriously as an adult, one of the first things you need to do is establish good credit. However, the vast majority of people in the United States are saddled with low credit scores, and this can make it difficult to take out loans or apply for other credit products, like a cell phone contract or new car lease. Fortunately, there are plenty of ways to improve your credit rating over time, and this article will show you 8 of them so that you can start building your own credit history today.
1. Check Your Credit Report
One of the most important steps in improving your credit rating is checking your credit report. This document can tell you if there are any errors on your report or if you've been blacklisted by any organizations that could impact your ability to get a loan or even rent an apartment. It's a good idea to check your credit report at least once per year, so make sure you check it as soon as possible.
2. Understand Your Score Range
Understanding your credit score range can help you target how much you should be improving your credit rating by. For example, if you have a good credit score that's at 700, you don't need to worry about improving it any more than say someone who has bad credit in 400s. It's important to know where your credit is as a baseline before moving forward and wanting to improve.
3. Don't Close Old Accounts
Closing an old credit card may seem like a good idea, but it can actually hurt your score. Keep old accounts open by only charging small amounts on them (less than 30 percent of your available credit) and paying off their balances in full every month. Closing these accounts can lower your overall utilization rate—the amount of debt you have compared with how much you have available to borrow—making it appear as if you're using less of your available credit, which is what helps you boost your credit score.
4. Make Payments On Time
Our credit scores suffer when we don't pay our bills on time, so make sure you're aware of your payment due dates and always make payments by these deadlines. If you use online bill pay, you might even set up automatic payments, which can simplify things.
5. Reduce Debt Levels
For most people, debt is a major issue when it comes to their credit rating. As with so many things in life, balance is key. Start by consolidating your debts and looking at flexible repayment options. Avoid short-term fixes like credit cards—they can help you make monthly payments on time, but they'll also drag down your credit rating further if you don't pay them off completely each month.
6. Manage Multiple Lines of Credit Well
Having multiple lines of credit—for instance, a department store card and a loan from your bank—isn't necessarily a bad thing. Rather, it shows that you can manage money responsibly. (After all, credit scoring formulas typically reward you for using multiple cards responsibly.) Having multiple accounts also helps your score in another way: by diversifying your mix of open accounts (those with current balances), which is seen as a positive by credit bureaus.
7. Open New Lines of Credit Sparingly
Opening up new lines of credit can have a significant effect on your credit score. Too many new accounts can actually damage your rating. But don't worry, too little access to credit is just as bad for your rating. Don't open too many new accounts or close existing ones, but rather spread out when you open or close them so that they don't affect your score in such a drastic way.
8. Take Advantage of Free Monitoring Services
The law requires that you be sent a notice of any information change in your credit report (unless it's an investigation for fraud, for instance). The easiest way to take advantage of free monitoring services is with three credit bureaus—Equifax, Experian and TransUnion. Each bureau keeps a separate file on you, but by signing up with all three, you can monitor all your files at once.
