When you have no credit history, or perhaps you have past issues that have damaged your credit score, repairing it as soon as possible is important. If you want to make big purchases, such as a house or car, you’re going to have to show that you’re a responsible borrower and improve your credit score.
Having a low credit score is going to disqualify you from taking a lot of steps you need to follow in order to move forward in your life.
Along with not being eligible for certain types of financing, if your credit score isn’t great, you aren’t going to get the best terms and interest rates, even if you can get a loan.
The following are some things you can start doing right now to improve your credit score. It will likely go up faster than you think.
Go Over Your Report Carefully
If you haven’t already gone over your credit report with a fine-tooth comb, now is the time to do so.
It’s impossible to improve something if you don’t know what you’re working with.
You may be a little nervous about facing the reality of your credit report, but you need to know exactly what’s on it. There may be errors that need to be corrected or outdated information that you need to have taken off.
If you have any delinquent accounts on your report, start there. You may be able to work with the creditors to pay less than what you owe. Once you pay what you owe or what’s agreed on, then the creditor may take off delinquencies. That can raise your score quickly.
Work on Credit Card Balances
If you have open credit card balances, your credit utilization rate has a big impact on your score.
A good starting point is to make small payments on your credit cards as often as you can throughout the month.
Chip away at your balances and get your credit utilization ratio down.
There are also specific methods that you might want to follow to pay off your high-interest debt.
For example, maybe you choose the card with the highest interest rate, and you start to pay as much on it as you can until it’s paid off, paying only the minimum on your other cards in the meantime.
If you have a good payment history with one of your credit card companies, ask them for a higher limit.
This will help your score go up because your ratio of used to unused credit will improve. There’s no guarantee the company will say yes, but it’s worth a shot.
The goal with credit utilization is to have it at 30% or less. Even better is 10% or less.
Don’t Close Credit Card Accounts
If you’ve paid it off or you’re not using a particular card, a big mistake people make is closing it.
Don’t do that.
One of the factors that weigh on your credit score is the age of your accounts. It’s better to have a longer average credit history.
Also, if you were to close an account, then you have less available credit, so it’s going to negatively impact your credit utilization ratio. You’ll owe the same amount, but you’ll have less credit that you can use, which is bad for your report.
Try to Have a Mix of Accounts
If you don’t have much credit history or you’re working to rebuild, lenders often want to see a healthy mix of different types of accounts. This means that you have limited credit card accounts, but maybe you also have something like a small personal loan, so you have an installment payment on there too.
Don’t put yourself in a bad financial situation trying to mix it up, but do what you can.
What If You Don’t Have Any Accounts?
Finally, if you have no credit history, you may not have any accounts on your report. If that’s the case or if you’re starting over in terms of your finances, you might first see if someone will add you as an authorized user on a credit card.
You don’t have to use the card for it to improve your score.
Another option is to consider a secured credit card.
A secured credit card is backed by a cash deposit that you pay upfront. The deposit amount is your credit limit.
You use it like a normal credit card, but you can’t spend beyond the deposit. These cards are reported to credit bureaus.