Having good credit can help you get favorable terms on a number of products, from mortgages to credit cards. On the other hand, having a bad credit rating can make it harder to get loans and new lines of credit.
If you’ve set a goal to boost your credit score in 2022, here are five strategies to consider:
- Review your free credit reports
- Improve your on-time payment history
- Pay off credit card debt
- Keep old accounts open
- Open a secure credit card
Learn more about each credit repair strategy in the sections below and visit Credible to sign up for free credit monitoring services. You can also shop for a number of financial products, such as credit card consolidation loans and secure credit cardsfor free with no impact on your credit score.
WHY IS GOOD CREDIT IMPORTANT?
1. Review your free credit reports
The first step to increasing your credit score is to identify areas where you can make improvements. An effective way to do this is to review your credit reports with the three major credit bureaus: Equifax, Experian and TransUnion.
Check your credit reports for errors, such as missing accounts or clerical errors that result in mistakenly missed payments. Then dispute any errors by contacting the credit bureau, which is responsible for correcting inaccurate information through the Fair Credit Reporting Act.
You can request free weekly credit reports until April 20, 2022 at www.AnnualCreditReport.com. After that, you can pull your credit reports once a year for free. You can also sign up for free credit monitoring services on Credible, so you can identify errors or fraud as quickly as possible.
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2. Improve your on-time payment history
Your payment history has the biggest impact on your credit rating, accounting for 35% of your score using the FICO scoring model. Derogatory marks, including missed payments, can last up to seven years on your credit report, although they have less of a negative impact over time.
Signing up for automatic payments to pay your bills and utilities is an easy way to improve your on-time payment history and boost your credit score. It may also be useful to download a free budgeting app to track your expenses and bills across all your bank accounts.
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3. Pay off credit card debt
Another factor with a strong impact on your credit score is your credit utilization rate, which is the amount of credit debt you owe relative to your available credit. For example, if you owe $500 on a credit card with a credit limit of $4,500, your utilization rate on that account is approximately 11%.
Borrowers who regularly have high balances on their credit cards may have a high credit utilization rate, which can lower your credit score and cost you money over time due to interest rates. students.
Let’s say you have $3,000 in credit card debt on an account that has a $5,000 line of credit and an interest rate of 17%. If you only make the minimum payments, your credit utilization is 60%, which is about twice what credit reporting agencies recommend. Plus, you’ll likely pay hundreds of dollars in interest charges while you pay off your debts.
One way to lower your credit usage and save money on interest is to consolidate credit card debt at a lower interest rate with a personal loan. As a bonus, personal loans can diversify your credit mix, which can further increase your credit score. You can compare personal loans for debt consolidation on Credible with a gentle inquiry, which will not impact your credit score.
HOW TO CHECK YOUR CREDIT SCORE FOR FREE WITH NO PENALTIES
4. Keep old accounts open
Credit bureaus like to see a well-established credit history, which includes the average age of credit accounts in your name. If you have old credit accounts that you don’t necessarily use, it may be useful to keep them open to demonstrate a sufficient length of credit history.
Likewise, it may be wise to avoid opening new credit card accounts while you’re building your credit score. New accounts will shorten your average credit age, and they will also have a temporary (and minimal) negative impact due to thorough investigation when you apply for the account.
You might also consider becoming an authorized user on a trusted friend or relative’s credit card account. If they have a regular, on-time payment history on an old account, it can help you build your own credit report without much effort on your part.
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5. Open a secure credit card
If you don’t have an established credit history, it can be difficult to qualify for a traditional unsecured credit card. But without new lines of credit, it can be difficult to build your credit.
Some credit card issuers offer secure credit cards, also known as credit cards. These accounts allow you to borrow money from a line of credit that you secure with a cash lump sum. With a secured credit card, you may need to pay $1,000 upfront – then you can use the credit card up to a certain limit.
Secured credit cards can help you establish a timely payment history and diversify your credit mix. This can help you boost your credit score quickly while avoiding interest charges. You can visit Credible for compare a variety of credit cardsincluding secure cards.
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Do you have a financial question, but you don’t know who to contact? Email the Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.
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