Raising Your Credit Score
Updated: May 18, 2022
In today's society, a credit score can impact every financial aspect of a person's future goals. When there is a low credit score, it is not likely that a person will be able to buy a car, a home, or take out any type of loan. When they are trying to borrow from a lender, the lender will review their payment history. Unfortunately, if a person is starting out without debtors to build credit, or they are not able to pay on time, then lenders view this negatively and worry about getting their payments. Low scores and poor payment history can also affect renting, and utilities being set up. However, all is not lost as there are ways in which a person can improve their scores. First, analyze why your score is low. How did it get to this point? For the majority of the US population, it is credit card debt... but this may not be you as many borrowers are just starting to build credit.
1. Credit Card Debt….. a few thousand can take FOREVER to pay off with a high-interest rate.
Also, is the card being paid consistently on time? This can REALLY alter a score and possibly add even more to the financial debt. Every time payments are not on time, not only do you get additional charges, but it also may increase the interest rate that you are paying. Many of these companies will increase the interest rate on the FIRST late payment. Credit cards can get to the point that when a person pays, the minimum amount, it is not even enough to cover the charges so instead of decreasing it is increasing each month. This just means more money for them in the long run. If the interest rate is high on the card, consider transferring it to a lower interest rate card but just be sure to read all the fine lines because there may be charges.
To stop this perpetuating cycle, a person usually must pay over the amount of the debt and pay it on time or even before it's due. That way, there is assurance that it will reach their desk on time.
2. Pay all bills on time:
Pay all bills on time. Unfortunately paying utilities, etc. on time will not usually help a person's credit, but if not paid on time it may hurt their credit. The bottom line is just to set a goal to pay all on time. One or two payments that are not that late will not generally have a negative effect on the credit score.
3. No Credit: If a person does not have credit- because they are just starting out, this is actually an easier fix than if they have bad credit. A person can apply for a secured credit card that has a limit when starting out. For example, a person can obtain a card that has $500.00 secured on it, meaning that they will have $500.00 in the bank and they will be borrowing for the purpose of building their credit. Then they will receive a payment every month and by paying this on time they are showing the creditors that they are reliable, and credit with them.
There are some department stores and furniture stores that will also allow a person to open a small line of credit when starting out.
4. Budgeting: For some individuals budgeting just comes naturally, but for others, it can be more difficult and most everyone is busy. Therefore, it is useful to establish a written budget for each month. When a person analyzes their bills, there may be a week where there are a lot of expenses being paid. Some people account for this and just hold the money, but it can get confusing. It might work better for others to call their creditors and change the due date. That way you have your debts spread throughout the month and are easier to manage.
5. Checking your credit score:
A person can check their credit score online to have a better understanding of where their credit score is at and on many of these sites, it is free. Just don’t check your scores too often as it may lower your score. Some of the websites are: freecreditscore.com, Experian and creditwise.com
Summing it all up: The most important thing when building credit is just to remember it does take time. Work towards establishing credit and make payments on time. Changing a credit score will not happen overnight but if a person keeps working at it they will reach their goals.