In many ways, your credit score reflects your value as a human being. While obviously not a perfect correlation, many institutions in our day-to-day lives seem to think so. From small banks wishing to loan money to prospective borrowers to your local landlord, it seems everybody is checking credit scores these days to ascertain potential risk.
One of the biggest obstacles to a brighter financial future can, in fact, be a low credit score. Whether you’re wanting to buy a home, rent a property, obtain a credit card or secure a small loan, your credit score will impact the outcome.
Today, we’ll outline some simple steps you can take in order to build your credit score intelligently and for the long-term.
Keep a Reasonable Credit Limit and Balance
For those with existing lines of credit who are looking to build their credit score responsibly, there is a need for access to credit – and as little of it as possible to be used.
Ultimately, the ratio of used credit compared to total revolving credit – i.e. how much of your available credit you’re currently using – should never exceed 1 in 3 dollars. When people have access to credit but do not use it, this signals to lenders that you are a responsible individual.
While it can be bad to open numerous credit lines and never use them, keeping your overall credit balances low is essential to improving your credit score over a period of months and years.
Dispute Any Incorrect Charges
All too many people fail to even look at their credit reports, which can be a potentially costly disaster.
When you do not periodically check your credit report, you are potentially missing out on instances of identity theft and fraud that could be damaging your score. You are entitled to a minimum of one free credit report every six months: you should be examining your credit at least this often.
If you do find something on your credit report that shouldn’t be there, it is important that you dispute it ASAP. The longer illegitimate items remain on your credit score, the harder it is to successfully dispute them. For all charges that you wish to dispute, you’ll want to file a credit dispute letter like the one described here: https://creditrepaircompanies.com/credit-dispute-letter/.
Be Timely with Your Credit Applications
Whether you are shopping for a new home, a new car or a new line of credit, it pays to not bombard your credit report with multiple inquiries over a sustained period of time.
The reasoning behind this is simple: every time someone performs a “hard inquiry” of your credit, it can leave a lasting impression for up to twelve months that slightly lowers your credit score. Now imagine that you’re shopping around for a mortgage loan, inquiring with multiple lenders over a period of several weeks. All of those inquiries are going to begin adding up eventually.
Another way to minimize this problem is to ask that lenders execute what is known as a “soft inquiry”. While not always possible, this kind of inquiry will not affect your credit score at all and can prevent those temporary drops whenever shopping (learn more about the differences between soft and hard inquiries).
When you do not have the ability to perform soft inquiries, it is vital that you do all of your rate comparisons and loan shopping in a short period of time. It has been shown that multiple inquiries on your credit in rapid succession do less temporary damage than the same number of inquiries over an extended period of time.
Always Pay on Time
One of the biggest mistakes many people with fair or poor credit make is paying their bills late. While it was not the case in the past, many businesses and companies now report late payment behavior to credit bureaus. This means that being late on your electric bill or mobile phone plan can now cost you where it truly counts: your credit score.
While the occasional late bill is to be understood, this should be avoided as often as possible. By keeping up with your finances, setting alarms to remind you to pay in advance or even using auto bill payment services, you’ll avoid this unnecessary ding to your credit and gradually improve your credit score.
Take Out Small Loans
If your credit score is low enough that you’re not able to borrow money as needed for larger purchases, then you have to start small. Thankfully, you can easily repair your credit score intelligently with small loans.
Installment loans – those that require you to pay a set amount monthly for a predetermined period of time – comprise the vast majority of loans in existence. Once your credit score has stabilized and you’ve taken care of past debts by either establishing payment plans or paying them off, you should definitely ask for a small loan from the bank.
This can be anything from a few hundreds to a couple of thousand dollars. The purpose of borrowing this money is to establish a consistent history of paying bills on time and in full. By doing so, your credit score will continue to climb and you’ll be able to borrow larger sums in the future when necessary. It should go without saying that it’s not a good idea to spend any money you borrow for this particular purpose; simply set it aside, pay it back on a monthly basis and consider the additional interest you’ll pay as the cost of repairing your credit.
The road to a better credit score is long and potentially time-consuming. Your credit score did not necessarily plummet overnight and it will not be repaired overnight, either. There are many things you can do to improve your credit score; some of them are acts that simply prohibit negative events from occurring. By maintaining a reasonable credit balance, paying back small loans in order to establish a good history of paying bills, always paying your bills on time, disputing any invalid charges and avoiding unnecessary pings on your credit report, you’ll gradually build or rebuild your credit in the smartest way possible.