Do you know your credit score? If you do know your score, do you understand it? Think of your credit score like your financial report card. Every time you apply for a loan, a credit card, or even cable TV, they will check your score to determine your credit-worthiness. If you have a bad score (below 620) it can have a negative impact on your ability to qualify for lower interest rates and you could even be denied lines of credit.
There is a stigma around credit cards that makes people think they are “bad” and that they should be avoided. This just isn’t true, if handled properly! I got my first card when I was 18 years old and have been successfully building credit ever since. Because of that, I was able to qualify for a 0% loan for my first car and an excellent interest rate on our first house.
If you have hit a few financial snags, your credit score might be suffering. If you don’t know your score, you need to find out what it is! Knowledge is power! Check out CreditKarma.com to get your score for free. I check CreditKarma every few weeks because I’m obsessive! There, you can see your entire report and some clues to what might be bringing your score down.
Things to Check For:
Are there any errors? Are there any invalid late payments listed? Get any errors fixed because they could be bringing down your score.
Are there any unpaid medical bills? Medical bills always seem to be the ones that show up on credit reports. It could be possible that you have something hanging on there from a long time ago that you didnt even know about! If that is the case, get it taken care of immediately. As I mentioned, if you feel it is in error, request to have it removed.
Do you see all the lines of credit that you expect? Make sure there isnt an account that you don’t know about or don’t remember. This is also an indicator of identity theft and regularly monitoring your credit can give you peace of mind.
Once everything is in order, you can start working on improving your score. Improvements won’t happen over night. However, after a few months of consistently following good habits, you will see your score improving.
So, what are these good habits that can improve your score? Read on, my friend…
Improvements to Make Right Now
Pay down debt. The number one thing that will improve your score (somewhat) quickly is paying down debt. Your credit score will continuously decline every single month that you utilize more than 30% of your overall credit limit. That means if you have a $5,000 limit on all of your cards combined, you should never have more than $1500 charged at one time. I know this is easier said than done, but stop making the bare minimum payments. Start with the highest interest card and attack it. Get rid of debt as soon as possible. Set up a budget and take a hard look at your finances to figure out how to make it happen. Making changes will be uncomfortable and probably not very fun, but having debt isn’t very fun either. Even if you aren’t getting rid of it completely, taking big chunks out will go a long way.
Don’t open up new cards. Opening up more cards to increase your credit limit isn’t a good idea. Every time you apply for a new line of credit, the creditor will check your credit report. This results in a “hard check” to your account and will remain there for years. Hard checks have a negative impact on your score. Also, length of credit history is important as well. The more new cards you open up, the younger your average credit history will be. That will also have negative impacts. This also means you should not close credit card accounts – especially if they are ones you have had for a long time. I still have my very first credit card, even thought I rarely use it.
No more late payments. Making late payments is another big hit to your score. Set up reminders or automatic payments if you must. I don’t encourage just making the minimum payment, but at least do that instead of missing a payment!
If you follow these guidelines, I guarantee you will see a steady increase in your score. It takes some time – but it is very possible to turn that score around with a little bit of work. Once you get your score under control, avoid using your card for a while if you think you will have trouble with it.
I mentioned a lot of the things that can impact your score, but heres the complete list for reference:
- Credit Card Utilizaiton
- Payment History
- Derogatory Marks
- Age of Credit History
- Total Accounts
- Credit Inquiries
Read more about credit here: