Your credit score is the key to managing your finances. Many employers look at an applicant’s credit score to determine fiscal responsibility. Landlord and property management companies make credit scores the most important factor that determines the eligibility of prospective tenants. Of course, every credit application you submit immediately goes to a credit reporting bureau to kick out your score.
There is not a secret locked away in a vault that explains how you can achieve a good credit history. The road to creditworthiness requires following six easy ways to raise your credit score.
#1 First Things First: Make Payments on Time
You probably have heard the term “baby steps” as it applies to accomplishing a goal. For raising your credit score, the first baby step involves getting into the good financial habit of paying bills on time. As the most important step to take for boosting a credit score, making payments on time indicates whether you know how to manage your finances. Even better, send payments early to ensure each creditor receives the payments before the due date.
#2 More is Not Merrier
FICO and VantageScore both count the number of credit inquiries you have on your record over a designated period. The more credit inquiries you have, the lower your credit score falls. Make sure to apply for credit, not for just the sake of having credit, but because you could use a certain source of credit to make your life financially easier. For example, if you want to open a gas card account, pick one creditor, and the stick with that creditor. One note: FICO and VantageScore do not penalize consumers for submitting pre-qualification forms online.
#3 Know Your Credit Utilization Rate
The credit utilization rate is a simple equation: Take your total balance across every source of credit and divide it by your available credit. For example, if you have a Visa card that has a $200 balance and available credit of $1,000, then your credit utilization rate is 20 percent. If your credit utilization rate rises above 30 percent and you have trouble paying off debt, then you can expect your credit score to decline. Focus on paying off debt, as well as not take on any additional debt until your credit utilization rate drops below 30 percent.
#4 Take Advantage of Free Credit Reports
Federal law permits consumers to receive one free credit report each year from the three primary credit reporting agencies (Equifax, Experian, and TransUnion). This means if you space out your requests correctly, you should receive a free credit report every four months. A free credit report not only keeps you on top of your credit history, but it also allows you to discover any errors. Credit reporting errors can lower consumer credit scores.
#5 Establish a Reminder System
Even the most meticulous consumers occasionally forget to pay a bill or two on time. You can prevent oversight by setting up a reminder system. It can be an email sent by a creditor that alerts you to a pending due date. You can also create a payment calendar that sends out an alert. Many creditors encourage consumers to access their websites for monthly payment reminders.
#6 Pay Phone and Utility Bills on Time
You can take care of every credit card bill on time, and still take a beating on your credit score because you failed to stay current with paying your phone and/or utility bills. Although not as significant of a black mark as not paying a credit card debt on time, not paying your phone and/or utility bills on time can drop your credit score several points.
One more tip to boost your credit score: If you find yourself struggling to meet a payment due date, contact the creditor to explain this month’s payment will be late. All most creditors want is for consumers to communicate with them when they hit a rough financial stretch.