Best Ways to Raise Your Credit Score
If you want to save money, raising your credit score can produce long term benefits and help you accrue some capital over time. 56% of Americans have a subprime credit score and if you are one of them, don’t worry, there are ways to boost your credit score and open up more opportunities for yourself.
If you have a “bad” credit score, lenders or card issuers are most likely going to charge you a higher interest rate. That lower number can impact your utility deposits, car insurance rates, mortgages, and much more. Since your credit score dictates so much of your life, it's worth the effort to get that number as high as possible. How are you going to do that? Start with these easy tips to raise your credit score and ultimately save yourself some money.
Check Out Your Credit Report
Before you can start the process of raising your credit score, you need to request a free credit report. By law, you are entitled to one free report a year, so I suggest asking for a report from one of the big three credit reporting companies—TransUnion, Experian, and Equifax. Once you have received your report, print or save it to your computer.
After you have acquired your credit report, thoroughly examine it. Look for accounts that have late payments or unpaid bills. If the report is incorrect, the report will provide the information for how to send a dispute and negotiate. These reports need to be clean since employers can and do pull up your credit report, which can make or break hiring decisions.
Lower Your Balance
30% of your score is based on the amount you owe; specifically, it’s how much you owe compared to how much credit you have. This ratio is known as your credit utilization. For example, if you have a credit card limit of $5,000 and a balance of $2,500, your credit utilization is at 50%. If your balance was $5,000, you're at 100%.
It’s suggested that your credit utilization rate be no more than 30%. A great way to get you to that number is to lower your balance and continue to use only 30% of your credit limit. If lowering your balance isn’t an option, then you can still drop your credit utilization rate by increasing your credit limit.
Increase Your Credit Card Limit
If you're not in the place where you can pay down your balances, take advantage of a different approach. Improve your credit utilization rate by calling your creditor and asking for a credit limit increase.
If you max out a credit limit of $1,000 every month, your rate is consistently 100%. But if you are able to increase your credit limit to $2,000, your credit utilization rate is cut in half. The key here is to not spend more of your new credit to ensure your rate stays lower without lowering your balances.
So you're paying off your payments every month, even when you have maxed out your limit. Yet your score is still not ideal. This is because creditors only report balances to the credit bureaus once a month. And, if you are running up a large balance every month, this may look like you are overusing your credit, even if you are paying balances off every month.
You can fix this problem by breaking up your credit card payments so your balance doesn't appear as high as it is. Go ahead and keep using your credit card, especially if it includes a reward program, but just make sure you are sending payments at least twice a month to have a lower running balance.
Become an Authorized User
If none of those work, there is one final option, but you will need a really good friend. If you know someone who has good money management skills, you can be added as an authorized user to their card. This will boost your score without making any payments to your balances.
For this to work, you have to find someone who likes you very much and can trust that you will not use their credit card. This person will be doing you a huge favor since you will be added to their account to build your credit. Their account will show up on your credit report as long as you have a card issued in your name. And since your friend is awesome at making payments on time and probably has great credit utilization rate, you too will benefit and build up your credit score.
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