Credit scores are essential, even for people who don’t take on debt. You will probably need a loan if you decide to get a mortgage one day or buy a new car. That becomes harder with a poor credit history.
Unfortunately, not everyone has taken steps to create a great score. Reports show that 22% of Americans have no credit score at all.
Do you want to make your credit score good and don’t know where to start? Check out the guide below to learn how to improve your credit history.
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Chip Away at Your Debt
Unfortunately, it’s hard to improve your credit score when you have a lot of debt. Credit agencies consider your total amount of debt when deciding on your score.
One factor this plays into is your credit utilization. What does this say about your financial state if you’re using almost all of your current credit?
Credit companies are looking for a credit utilization ratio of under 30%. If your credit isn’t under that number, do whatever possible to increase your principal payments to get your debt below that threshold.
You’ll likely see your credit rate increase once you do so.
Do you want a quick fix to increase your credit utilization ratio? If you have a good chance of being accepted for another card, sign up for it. Doing this will increase your credit limit and lower your utilization ratio.
Just be sure you don’t use the card and get yourself into more debt.
Don’t Close Accounts
It’s tempting to close accounts once you pay down all your debt. It makes sense to do so if credit cards tempt you. But this won’t always be the best choice.
Another factor credit agencies use when determining your rating is the average age of your debt accounts. The older your accounts, the better it is for your credit score.
Closing old accounts will significantly decrease your average account age. You may see a drop in your credit rating once this happens.
Even if you don’t use any of your credit cards, try to avoid closing them. This will keep your average account age up, improving your score when building credit.
Check Your Credit Report Regularly
Even if you never do anything wrong with your finances, that won’t stop financial companies from making mistakes. They accidentally post bad transactions, say you owe debt when you don’t, and make many other errors.
This is a problem because it impacts your credit score. If you never look at your report, there’s no way for you to know that anything is wrong.
That’s why it’s vital to check your report every few months. Look for items on your report that don’t make sense and check to see if there is an error.
You can contact the company that made the error and have them remove the problem. Doing this will boost your credit score once resolved.
Consolidate Your Debt
One issue people have when improving their credit scores is tackling all the debt. Some people pay so much on the interest that they barely chip away at the debt principal. That makes it too challenging to make any significant progress.
Consolidating your debt is a great way to solve this problem. Instead of having your debt spread across several accounts, you take a loan for your current debt value and pay off all your accounts.
This leaves you with one loan to pay off. Since your monthly payment and interest will likely be lower, you’ll have an easier time paying this off.
Of course, some people may have trouble getting loans because of being blacklisted. Check out this article to learn more about getting around this problem.
Ask to Remove Collections
Unfortunately, some people are unable to pay their debt and end up in collections. This is a big problem because that’s a mark on your report that doesn’t go away easily.
But that doesn’t mean you can’t work with collections companies to remove it. Call your collections providers to see if they can work with you to remove the credit flag.
If you’ve already paid off the collections account, some companies will do this for you without much hassle. If you have a current balance, you may be able to work out a deal to pay a lower amount and remove the collections flag.
You may need to contact a credit counseling company if you don’t get results. They can help you negotiate with your collections provider.
Get a Secured Credit Card
Being in debt isn’t the only reason some people have bad credit. In some situations, it’s because that person hasn’t taken on any debt at all. You won’t have a credit score in these situations.
Unfortunately, this is also a bad sign for lenders. You have no history, so it’s hard to trust you with credit or a loan.
But you can get started with a secured credit card. These cards usually have lower limits and stricter terms than unsecured cards. However, they will give you a starting point to build or repair your credit score.
You Have the Ability to Make Your Credit Score Good
It’s not easy to get financial help when you don’t have a good credit score. Lenders don’t want to take a chance on you, and the ones that do give you a huge interest rate.
Even though it will take some time, you have tools to make your credit score good. Follow the guide above to make building credit easier.
Head back to the blog to read more financial tips that will help you improve your standing in life.
