Awesome credit! Everyone wants it but many don’t have it or know the simple steps they can take to build or improve it. Thankfully, you’ll learn a number of proven ways to improve and build excellent credit here. So let’s get into it…
- Pay your bills on time
It isn’t rocket science. If you don’t pay your bills on time, it reflects badly on your credit rating. It doesn’t matter if you delayed by just a few days. A late payment affects your score negatively. But while all late payments are bad, late payments that result in the creditor sending a collection agency after you can hurt your credit seriously.
So whatever you do, plan to pay your bills on time. It improves your credit history (and your credit history accounts for about 35% of your FICO score). To help you do that, here are some things you can do…
Make sure you keep track of all your bills. You can use a good filing system or get a good piece of software that helps you keep track of every payment you have to make. Many people make late payments simply because they didn’t remember. Don’t be that person.
Another thing that will help you avoid late payments is setting up reminders as alerts on your phone. It’s pretty straightforward but can save you a lot of credit points. Finally, you can also set up automatic payments with your bank. Once set up, your bank automatically sends each payment to the right institution. Problem solved.
- Live within your means
Yes, you can buy now and pay later. Yes, you can amortize it and pay over the course of 36 months. However, do remember that whether you are expected to pay today or six months later, the payment has to come from somewhere: Your earnings.
So while you should take advantage of credit facilities, it’s important that you plan your life and know what repayments you can handle monthly with your current salary (or earnings).
Yes, you may have to cut out a lot of important things today. But if you live within your means, you’ll have more to spend as you won’t have to deal with higher interest rates that are usually the lot of people who have poor credit.
- Keep your credit utilization low
While your credit history is the single biggest factor that affects your FICO score, your credit usage or utilization comes second. It accounts for as much as 30% of your FICO score. But before we suggest ways to improve your credit utilization, let’s ensure everyone’s on the same page. So what does this mean?
Credit utilization refers to the percentage of your credit limit that you are using at any point in time. If, for example, your credit limit is $10,000 and you run your credit up to $5,000 then your credit utilization for that period is 50%.
Now that we’ve got the definition out of the way, what do we mean by keeping your credit utilization low?
We mean you should keep it 30% or less. Ideally, aim for a maximum of 10% utilization which is the point you’ll see a substantial impact on your credit score.
So how do you achieve that?
The first (and obvious) way is to ensure that you pay up your credit balance in full each month – And do so on time. Next step is to ensure that you limit your credit usage to a maximum of 30% or less. Once you have used up 30% of your credit limit, try using your debit card instead or pay cash or leave that item until next time.
30% isn’t the target. It’s a point you should NEVER exceed. The target should be 10% based on expert recommendations. So apply the same logic to get to 10% after you’ve beat the 30% mark.
Another way is to ask your bank to increase your credit limit. Once you are able to achieve that, you’ll have more room to spend without going above the recommended credit utilization percentage.
However, it’s important to note that you should ONLY use credit that you can pay up on time. If increasing your credit limit only makes you use much more than you can pay back on time, you’ll hurt your credit history which will end up costing you more points.
- Take full advantage of your rent payments
For most people, the biggest monthly expense they make is their rent. But do you know that you can boost your credit score by as much as 101 points if you go about it the right way? The interesting things here is that the lower your score is at the moment, the higher the impact reporting your rent would have, improving your credit rating.
More so, for those who haven’t bothered to build their credit (have a thin credit file), reporting your rent payments for up to the past 24 months can see you raise your score to as high as 640 points or even higher in as little as two weeks after reporting your rent payments correctly to TransUnion & Equifax.
Now, it’s NOT just you alone. Anyone who’s on the lease agreement (your spouse or roommate) can also benefit from this. Yes, even if you sublease an apartment, you also qualify provided you have an agreement (in writing) with the landlord or the company managing the property.
You are encouraged to report your past and current rental history as this gives you the biggest boost. Also note that reporting your past rents for up to 24 months helps you age your credit profile. This is important because the age of your credit history can help you increase your credit score by up to 15% if you do it right.
So how do you do it right?
Simple. Just look for a firm that specializes in helping renters report their rent payments to the appropriate organizations. One site we’d recommend for this is https://www.creditrentboost.com/
One of the big advantages of building up your credit (or repairing bad credit) by reporting your rent payments is that you don’t have to take on any new debts. No, you simply use payments that you make already. So don’t miss this opportunity if you are a renter.