Even if you're not using your credit cards, your credit score can still impact your daily life. Employers may look at it when making a hiring determination. Insurance companies may check it. If you're trying to rent a home or apartment, your credit score will be taken into consideration. And of course, you can't buy a home or a car without decent credit. That's why it's so important to maximize your credit score...even if you are trying to limit your debt.
If you already have a stellar credit score, good for you! Keep it up. But if you're like so many people, especially right now, your credit score could use a little work. The good news...it's possible to improve your credit score. And it's not really even that difficult.
First, it's important for you to learn how your credit score is calculated. I am not going to go into that here. You can Google it. And I am not going to give you a detailed plan to improve your credit score. Everyone has a different situation. However, the general steps I am going to share are what helped me rebuild my credit score. They should work for almost anyone. Once you have these completed, you can do more in-depth research on ideas that fit your unique situation. Here are my 5 steps to maximize your credit score:
1. Build your credit file. No credit is almost as harmful as bad credit. It's important that you actually have accounts IN YOUR NAME that report to all 3 major credit bureaus.
There are several ways to do this, even with a low credit score. There are credit cards specifically offered to those with bad credit to help raise your score. The interest rates are high and there is usually a hefty annual fee. However, since your track record may indicate you won't pay your bill, you can hardly blame these companies for making money where they can. But if you use your new card responsibly, they can be an effective way to start rebuilding your credit.
There are also secured cards. You put money into an account. The amount in your account will be your credit limit. The plus side of this is you usually get a bit better terms than the 'credit builder" cards because the money is already in an account, ready to pay your bill if need be. The bad side is you can only spend up to the limit of what is in your account. But again, a secured card can be a great way to build or rebuild your credit.
A third option is to have someone add you as an authorized user on one of their credit cards. Just make sure they are paying their bill on time. And make sure you pay them your share just as you would any other bill.
2. Make your payments. The fastest way to trash your credit is to make late payments or to miss them altogether. Your payment history is one of the things credit bureaus consider when determining your score. The more on-time payments you have, the better you look. Make sure your never miss a payment by more than 29 days. If you are 30 days late, that can be reported to the credit bureaus as a late payment and hurt your score. Get in the habit of paying all your bills - even the ones that don't necessarily report to the credit bureaus - in full and on time.
3. Pay your past due accounts. If you have some accounts that are behind in their payments, now is the time to get them caught up. Otherwise, you will just continue to add late payments to your credit report. And eventually, these companies will try to get their money. Having accounts in collections will definitely put a ding in your credit score. If you are having trouble with your debt, consider talking to a credit counseling agency. They are often able to negotiate with companies to get you lower payments and interest rates.
4. Pay down your balances. Even if you're not behind on your bills, you still want to pay these down. The credit bureaus look at something called your Credit Utilization Rate when determining your score. (Check out the great article on nerdwallet). If you are using a large amount of your available credit and only making minimum payments, that can signal trouble to the bureaus. Paying down these balances can definitely help improve your scores.
5. Be careful how you apply for new accounts. Yes, you may need to open a new account for a variety of reasons. But often, an application for credit can cause a hard inquiry on your credit report. When the credit bureaus is calculating your credit score, a large number of hard inquiries all at once could indicate you are in financial trouble and seeking credit to help....credit that you may not be able to pay back. Don't apply for too many accounts at once and always ask if your application is going to result in a hard inquiry. Often it is possible for lenders to pre-qualify you for credit by doing a "soft: inquiry, which will not impact your credit score in any way.
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