Your credit score is something you probably don’t give much thought to on a day-to-day basis. Although it’s there in the background, it’s probably not affecting your life in any meaningful way – that is, until your credit score dips or takes a hit. Suddenly, when faced with poor credit, you can be left scrambling trying to figure out what you should do, wondering how long it will last and how it will affect you. All in all, a poor credit score can be quite stressful, alarming, and even discouraging.
Here we’ll take a look at different ways you can build and improve your credit score in 2022 from actionable steps to making decisions on big-ticket purchases you’ve been mulling over. By taking action, there’s no doubt you’ll be able to turn things around.
Does Your Credit Score Really Matter?
Before you start looking for ways to improve your credit score, it’s important to understand why you’re doing this. The fact is that having a good credit score can end up saving you a lot of money. You’ll be approved for lower rate mortgages, loans, line of credit, and more. When you are viewed as a low-risk borrower, you have more options available to you. Aiming for a good credit rating isn’t about making your immediate financial situation more favorable; it’s also about your future.
Obtain a Credit Report and Look Over It Closely
Now it’s time to obtain your credit report so you know what your credit score is. It’s hard to make changes when you don’t know what you’re working with. At the same time, this is an opportunity to look over the report checking for inaccuracies. You’d be surprised at how common inaccuracies are. You’ll need to remedy these right away, which will then give your credit score a bit of a boost. One tip to keep in mind is that asking for your credit report counts as an inquiry, which will lower your score. Because of that, it’s recommended you don’t ask for your credit report more than once a year.
Are You Making Bill Payments on Time?
Did you know that late bill payments can end up hurting your credit score the most? That simple credit card bill, utility bill, or even your mortgage payment always needs to be paid on time. Paying late can result in a late fee, plus it makes you look unreliable, thereby hurting your rating. If you know you’re able to consistently pay bills such as rent, you can ask your landlord how to report rent to credit bureaus and boost your credit score while building a positive tenancy record.
Plenty of people have a hard time remembering bill payments, especially when they have a large number to keep track of. The best solution is to use a budgeting app that you can set reminders on or to set up automatic payments on your bank account.
Need a New Car? This Can Help Build Your Credit Score
Perhaps you’ve been holding back on buying a new car simply because you think it would hurt your credit rating to take out a loan. Here’s something that may come as a surprise to you: financing a car can help to build your credit over time, provided you make all the payments on time. Keep in mind that the initial request for financing will spark a credit inquiry, which will cause your score to dip. It won’t be by much, and as soon as you start making your car payments, your score will gradually start rising.
Tally, a company that offers low-interest credit lines, takes a closer look at the question of “does financing a car build credit”, going into great detail about what happens to your credit score during this process. The fact that it won’t hurt your score in the long run and will build your credit rating means there’s no reason to hold back on the purchase. Tally recommends choosing fixed loan payments each month, as that will make it easier from a budgeting standpoint, and you know there will be a set end date.
Chip Away at Credit Card Balances
Experts also suggest you start chipping away at any credit card balances you have. If you are in the habit of only paying the minimum, you’re never going to pay off the balance. Not only that, but it gets easy to hit the maximum limit if you’re never paying things off. To keep your credit score healthy, it’s wise to keep the balance at 30% or lower than the maximum allowable limit.
If you’ve got multiple credit cards to pay off, start with the highest interest card since that is the one that is costing you the most money. Some people choose to consolidate their debt if they have a lot of different cards and loans outstanding. This means you’ll only have one payment to worry about, with one interest rate.
Older Credit Will Reflect Favorably
If you happen to have older credit that you no longer use and is paid off, such as an old credit card, you may be tempted to close the account. However, this can end up hurting your credit rating, or at the very least, it won’t help it. Typically, the older the credit is (provided there are no missed payments or delinquencies), the better it reflects on you. So, hold off on closing those old cards. This can go against the idea of consolidating credit cards, but they can work hand in hand. If possible, choose the oldest credit card or line of credit to pay down all the others.
Say Yes to Credit Limit Increases
If your bank offers you a credit limit increase, it’s important to say yes. Even if you don’t need it or plan on using it, still say yes to the increase. If you haven’t been offered an increase, try speaking to your bank about it.
Building and improving your credit score is something that takes time, and there is no overnight magic fix, unfortunately. You need to be prepared to put in the work, use various steps and keep at it even if it takes a year or more. Remind yourself that it is a process, but it will pay off in the end.
