Maintaining your credit score is a lot of work, and it’s unfortunately much easier to damage it than raise it. Because of this, many Americans are in the same boat without knowing how to get out of it.
Fortunately, there is hope for your financial security. While improving your credit score isn’t easy, possible solutions aren’t too complicated, either. Consider these tips for building your credit score and improving your financial habits in general.
1. Refine Your Credit Card Usage
The first step is always the most straightforward one — don’t spend more on your credit card than you can afford. If you can’t pay it back fully when the bill comes, your debt will go up. While your credit score won’t necessarily be harmed by carrying a balance, it can be if your overall credit utilization is too high.
Your credit utilization ratio is the amount of credit you’re using relative to the total amount you have available. In general, credit bureaus like this figure to be 30% or less. Simply put, spend only what you have, avoid exceeding 30% of your total credit, and pay it all back monthly if possible.
In case your current score prevents you from getting approved for a regular credit card, you are not out of luck! You can look for a secured credit card, which requires an initial deposit or funds transfer, the amount of which becomes your credit limit. Such cards are easier to get due to the lower risk to the issuer. If you go this route, you won’t lose any of your deposit as long as you pay everything off on time.
2. Get Help From a Loved One
Credit scores are all about financial reputation: The more responsible you look to lenders, the higher your score. If you financially associate with someone with a higher score, then your score will reflect that relationship. You can do this by asking a loved one to make you an authorized user on their credit card or cosign for one.
The potential issue here is that you can harm their good credit if you engage in irresponsible financial activity. If you run up a bunch of charges on a card for which you’re an authorized user, you could explode their credit utilization ratio. Should you neglect to make on-time payments on a card for which they’ve cosigned, you’ll damage their payment history.
Therefore, if you have a history of financial missteps, you’ll need to prove that you’re turning over a new leaf. Without that assurance, your friend or family member may not want to help you.
3. Take Out a Credit-Builder Loan
A credit card works in a monthly cycle by providing funds to spend and requiring you to pay them back. Loans likewise demand repayment, but one important difference is that they are generally a one-time sum. This makes them an example of installment credit, rather than revolving credit. Since credit mix makes up 10% of your credit score, this makes loans an important element in boosting your credit.
The Catch-22 is that those with damaged or no credit history may have trouble getting approved for a loan. For such individuals, credit-builder loans are offered specifically for the sake of enabling repayment.
The way this works is simple. When you take out a credit-builder loan, the issuer will hold the sum in an inaccessible account until you pay it off. Basically, if the loan amount is $1,000, you have to pay off that $1,000 to gain access to it. While you end up with no loss or gain of funds, there’s a clear benefit to this process. With your monthly payments, you demonstrate your ability to pay off installment credit, thereby increasing your credit score.
4. Report More of the Payments You Make
The importance of being punctual with credit card and loan payments is clear, but what else can you do to prove your creditworthiness? Opening new accounts is not recommended unless you space out the applications and can afford to maintain the accounts.
Instead, look into getting other regular payments (rent, utilities, etc.) reported to credit bureaus on your behalf. Rent in particular is a large portion of your income, and reporting timely payment of this monthly obligation can raise your score.
It’s frustrating that such payments aren’t already included in your credit score, but services like Rent Reporters and Rental Kharma can make it so. The required fees for their work can be hard to part with but are well worth it for the effect. There are even services like Experian Boost that report smaller payments, like streaming service and phone bills, but the result may not be as palpable. It’s up to you if you have the funds and want to look into the possibilities.
A period of poor credit health is not the end of the world. Putting in the work to change your credit score can very much help you improve your habits in the long run. Face the future with hope, knowing that you’re ready to work for it. Use these tips to help get you there, and your score will rise in no time.