Your credit score is important – why is that? It’s because your credit score helps businesses or institutions that may lend you money quantify how reliable and responsible of a borrower you are on an easy to understand scale. At some point in your life, you’re most likely going to need to borrow money (if you haven’t already). A good credit score is a key to being able to borrow money at a reasonable rate. Credit scores usually fall into 1 of 4 categories: Poor, Fair, Good, and Excellent. If you have a Poor to Fair credit score, you likely find it difficult to borrow money, and if it isn’t difficult, it’s expensive. Those with Good to Excellent credit scores are more attractive to lenders and receive better interest rates on loans and credit. On your journey to becoming a more ‘attractive’ borrower, consider taking the following steps to help manage your credit score.
Check your Credit Score
Think about it, if you don’t know your credit score, how will you know if you’re improving it? Contrary to popular belief, your credit score won’t go down if YOU check it. If someone else checks your credit score (also known as a hard inquiry) or if you apply for various forms of credit, it may affect your credit score. Check your score at any time with the 3 major credit bureaus — Equifax, Experian, and TransUnion — directly for the most accurate information, or use a free service like CreditKarma.com to get your score based on information provided by TransUnion and Equifax. It’s important to check your credit score before a purchase like a car, a home or condo, or even in some cases, a cell phone. If you are considering making a major purchase where your credit score could affect the rates or price of your purchase, follow the steps below to help manage your credit score. If your credit score increases, you are more likely to get a more favorable rate or price.
Make Payments on Time
Credit card, mortgage, student loan and car payments should be made on time all of the time. Your payment history may affect your credit score, so making payments on time is crucial. A missed payment on your credit report could quickly negatively affect your credit score and stays on record for several years. Making payments throughout your billing cycle may help you improve your credit score and can also save you money on interest. If you’re someone who gets paid more than once a month, set up an automatic payment to your credit card(s) each pay period, rather than once it’s due.
Keep Utilization Low
For the average consumer, credit utilization makes up about 30% of their FICO credit score. Credit utilization indicates how much of your available credit (for example, the credit limit on your credit card) you are using. Some credit experts recommended maintaining credit utilization at 30% — this means that if you have a credit card limit of $1500, your balance should be around $450. Paying off your credit card’s entire balance each month should be your goal, but if you are unable to, aim for the 30% mark. As mentioned above, early payments are a great way to start to reduce your credit utilization and manage the potential impact on your credit score.
Build your Credit History
Having little or no credit history makes it difficult for financial institutions and businesses to determine how risky it is to lend to you and offer you financing options. As such, you may be denied credit or offered a higher interest rate. By making timely payments and repaying all funds you borrow, you can build your credit history. One of the ways to build your credit history is through the use of credit cards. If you’ve never had a credit card, try to find a credit card with lower interest rates and no annual fees. Choosing a credit card that has travel rewards or cash-back may incentivize you to overspend. If you have poor credit and are having trouble securing financing, consider applying for a secured credit card which requires you to provide a deposit. Establishing your credit history can be a step in the right direction to manage your credit score.
Dispute your Credit Report
One final tip would be to dispute any errors on your credit report. It has been found that, on average, 1 in 5 Americans have an error on their credit report. 5% of consumer credit reports have an error bad enough to affect their ability to get a loan or affect the favorability of their loan terms. While 5% may seem like a small number, this means that there are many Americans with errors on their credit report. Successfully disputing an error on your credit report may add a few points to your credit score and may potentially decrease your costs of borrowing. Correct inaccuracies on your credit report easily online with all three credit bureaus as they will work to resolve any issues within 30 to 45 days.
Last but not least
It may take 1 to 3 months before you see the effects of corrections of errors reflected in your credit report. Patience goes a long way when it comes to managing your credit situation. Regularly monitoring your credit score, making payments on time and making extra payments to get your utilization down will help you to better manage your credit score. If you have no credit or poor credit, there are still options available to you. Try starting with a secured credit card if you are unable to secure credit through other means. Finally, you’ll want to give your credit report a thorough read through and check for errors as there may be inaccuracies on your credit report dragging your credit score down.
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Disclaimers: Product availability varies by state. To see loan products offered in your state of residence, please visit our Rates and Terms page. MoneyKey – TX, Inc. is licensed as a Credit Access Business (CAB), License No. 16641-62815, by the Office of the Consumer Credit Commissioner and registered as a Credit Services Organization (CSO), Registration No. 20110150, by the State of Texas. All loans for which MoneyKey acts as a CSO and/or CAB are funded by an unaffiliated third-party lender and serviced by MoneyKey.
In the State of California, MoneyKey – CA, Inc. is licensed by the Department of Business Oversight pursuant to California Finance Lenders Law License No. 60DBO43590 and California Deferred Deposit Transaction Law License No.1004516.
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