How to Improve Your Credit Score in Five Easy Steps

You’re trying to get rid of high interest credit card debt using the balance transfer method, possibly thinking about consolidating or refinancing your student loans or maybe even considering applying for a mortgage to buy your first property… AMAZING… all great steps to being a real, live grown-up (at least when it comes to your finances, let’s keep it real). But what if your credit score is too low?

Click here to get your free credit score

1. Pay your bills on time

Set up direct deposits, automatic payments or calendar reminders for every single bill that leaves your bank account. By setting up an automated system of payment, you are sure to never miss another payment deadline, which has the most detrimental effect on your credit score. Some companies even offer interest rate discounts or other advantages to those who set up automatic bill pay. You can also do this through your bank account.

2. Check your credit report thoroughlyΒ 

Checking your credit report can alert you to any identity theft issues, as well as any incorrect information being reported to credit bureaus. I had a couple of mistakes on mine (outstanding student loans that had been paid for months) – since disputing the wrong information with the credit bureaus, my score has gone up significantly! Click here to access a free copy of your credit report.

3. Stop applying for new credit cards (unless it is a secured card – see below)

Every time you apply for a new credit card, this inquiry (whether you are approved or not) will stay on your credit report for up to a full year. The impact of this to your credit score is about 3 to 5 points per inquiry, which is relatively minor but if you are aiming to get to a particular number in order to achieve your financial goals… every little bit counts.

4. Don’t close unused credit cards

If you have fully paid off credit cards in your name – cut them up, don’t use them, but DO NOT cancel them or request their removal from your credit report. Cancelling cards will increase your utilization rate (the amount of credit you have in use in relation to the total amount of credit you have at your disposal) which is NOT good – you want to keep your utilization rate as low as possible – under 30% (ideally under 25%).

5. Open a secured credit card

If your credit score is really, really low and you need to build up your credit score in a major way, a secured credit card is your very best option. A secured credit card is a credit card that requires a security deposit. For example, you open a checking account and deposit $500 in it. You can then have a credit card for at least $500, which is guaranteed by the $500 held in that checking account. These cards have relatively low limits and require using money you have to secure the credit card but it is a way for creditors to evaluate your ability to pay back your debt. Even if your credit score is really bad – you are most likely eligible for a secured credit card which will allow you to improve your credit score drastically.

Good luck and stay tuned for more ways to achieve your financial goals!

Sincerely yours in harmonious fun and fiscal responsibility,

Rachel

 

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