When you’re committing to a healthier financial future, a good credit score should be one of the first areas you focus on. With a better credit score, you’ll qualify for more favorable loan terms and interest rates, which add up to substantial savings over time. Credit scores range from 300 to 850, with a score of 750 or higher generally considered excellent. Although the path to a higher credit score isn’t easy, you can set yourself up for success by adopting certain strategies. It’s worth noting that sound credit management is quite a bit like deciding to stick to a healthier lifestyle. You’re more likely to find success if you can implement these practices as “lifestyle changes,” rather than viewing the process as simply a temporary fix to your credit problems. Here are five of the most effective strategies to attain a higher credit score.
1. Pay down your monthly balances as much as you can.
Your payment history is one of the most important factors determining your credit score. So it’s a good idea to keep those credit card balances low. Your payments affect the percentage of revolving credit you have compared to what you’re actually using — and a low percentage is good for your overall score. Experts generally recommend keeping your percentage at or below 30%. So, for example, if a credit card has a limit of $1,000, you would not want a balance higher than $300 per month. And always make the minimum payment at the very least — if you can, try to set aside a few extra dollars to pay more than the minimum.
2. Stick to one or two cards.
If you have multiple balances across several different cards, look into consolidating them into one loan with a lower interest rate. Having multiple cards with balances will eventually lower your score. You should limit yourself to spending on only one or two cards (preferably with low interest and decent rewards and incentive packages). This strategy also carries the additional benefit of limiting the number of bills you’ll be responsible for paying every month.
3. Pay attention to all of your bills.
You might be surprised by what items affect your credit score — even down to an overdue fine on a library book. Paying your bills on time every month is an essential strategy in achieving a better credit score. Having a bill get sent to collections for lack of payment could send your score into a nosedive. If you can, try to set up all of your bills on auto-pay — and always pay the smaller fees, like those for library books or medical expenses, as soon as you receive the bill.
4. Spend within your means.
One of the biggest pitfalls that credit card users face is spending more than they can afford to pay back. Although it’s sometimes easier said than done, the trick is to start to view credit the same way as you would cash. If you’re thinking of purchasing something on credit that you can’t afford to buy right now with cash, the simple answer is to delay the purchase until you have the cash. If you find yourself frequently resorting to credit cards to cover unexpected expenditures, shop around for a card that offers low interest rates, so that if you end up having to pay for a larger expense over time, you will ultimately pay less interest.
5. Leave old “good” credit accounts open.
Many people make the mistake of closing accounts that they no longer use, mistakenly believing that too many open and unused accounts hurt their score. The fact is, the unused older accounts are actually quite beneficial to your credit. Don’t rush to close an account that’s paid off. That’s considered good credit, and lenders will look favorably on those items in your credit report. Closing an account could also change your credit utilization levels. If you close an account with a $1,000 limit, that’s significantly less available credit — which could make your debts look higher in comparison.
As part of your goal to get a better credit score, you’ll want to keep a close eye on your credit reports to ensure that no incorrect or outdated information is unfairly lowering your credit score. If you think you need to dispute something on your credit report, we can help. Contact the pros at Ovation Credit for a free consultation to learn how we can help you clean up your credit report.