First and foremost, it is imperative that you know what your credit score is. You can obtain a free credit report from www.freecreditreport.com and if you have a credit card, often times the online credit card system will have a link to your credit report as well.
Why is it so important to see what your rating is? Because if you don’t know what the score is, you won’t know what you need to do to make it go up.
Additionally, the higher your score, the better. Any time you apply for a credit card or loan, your credit history will be viewed. Don’t you want to know what those people see? I promise, it’s worth your effort.
Okay, onto some really easy ways to improve your credit score:
Pay your credit cards on time
Sounds easy enough, right? But more often than not, people tend to neglect paying credit card bills on time. Often it’s because they are low on cash and the CC bill is not a top priority. I promise you that in the long run, paying your credit card bill first will save you money.
There are several reasons as to why this is so:
A) if you don’t pay on time, you pay a fee. Once that happens, your whole payment goes toward paying off interest only.
B) your interest rate will rise. Check the fine print, your credit card company reserves the right to automatically raise your interest rate should you be delinquent.
By paying on time, not only do you save money, but creditors will see that you are able to pay on schedule. Paying on time every time = higher credit score.
Pay more than the minimum on your CC
Again, this piece of advice is good to follow because it saves you money while simultaneously improving your credit score.
Creditors know when you pay on time and they know how much you are paying. By paying more than the minimum (even if you can only afford just $1-2 in a tough month), creditors will see that you have “payed on time, payed more than the minimum.”
How does this save you money, too? Well, each minimum payment you make on your bill is likely covering mostly interest. By paying more, you’re actually making a dent in what you owe and as a result will pay off your loan faster.
Reduce the amount of CC’s you own
Most credit card/loan companies are dying to get your money. In fact, many offer incentives to get you to transfer your other credit card debt into their name. If said credit card company/loan agency has better interest rates (don’t be afraid to bargain with them) then do it.
This will save you money and time in the long run. And as for your credit score, the fewer open accounts you have the higher your score will be. Once you have consolidated your debt, call the other card companies to close your account.
Use your CC for big purchases only
This one is simple enough. Don’t use your credit card or loan money to purchase small items like coffee or knick-knacks. Credit card companies are aware of how much each purchase is and many are able to raise your interest rate if you make small purchases like these.
Why? It shows them that you are low on money and resorting to your credit card for minimal items.
Don’t pay your loans off too quickly
WHAT? I know – this one’s wacky. Now don’t get me wrong, you just always pay more than your minimum on loans and work on paying them off.
Let me give you an example. My junior year in college I got a small personal loan for a car. It wasn’t a big loan – probably around $3000.
My idea was that I should save up money from my summer job and pay off the loan entirely at the end of the summer. Bad idea. Why? I would have only had the loan for 4 months.
You see, loan companies like to make money and the way they do so is via interest rates. If I were to pay off my loan in full within 4 months of being approved, that would negatively affect my credit score.
It is always more important to show that you can pay consistently on time. My bank advisor suggested I wait at least 6 months to pay it off fully and that was sage advice!