If you are wondering how to improve your credit score, then there are some habits that you need to adopt to build your credit history and improve your credit score. These habits aren’t difficult to implement and they will pay dividends in the long run as your credit score improves over time. To start building good credit, be sure to consider the following 6 simple habits that build good credit scores.
1:Have a Budget
You may have heard that you should budget your money to build good credit, but what exactly does that mean? It means knowing how much money you make and how much you need to spend every month. Write down all of your expenses and stick to them. If you find yourself struggling to make ends meet or save any extra money at all, re-evaluate whether your spending habits are realistic. Make sure you’re paying yourself first so that if anything happens, like an emergency or unforeseen expense, you’ll still have enough money for living expenses. One way to do that is by setting up automatic transfers into a savings account each month. Remember: The point of creating a budget is not just to write down numbers; it’s also about sticking to it!
2: Negotiate your Credit Card Interest Rate
If you’re paying sky-high interest rates on a credit card, consider calling your bank and asking for a lower rate. Most of us live by the rule of thumb when it comes to credit cards—we charge $500 and pay off $50 each month. But there are better ways to manage debt. Here are three tactics that will help you improve your credit score in short order: 1) Pay more than your minimum balance: Your payment history is one factor in calculating your credit score, so if you pay less than your minimum payment each month, it can hurt your score. Aim for at least double your monthly minimum, but even just adding $10 per month to make sure you’re always making at least some payment can have an impact over time. 2) Keep balances low: The amount of credit you’re using compared with how much credit you have available plays a role in determining your credit score. When too much credit is being used, lenders assume a greater risk of default and increase fees or reduce limits – neither of which is good for your overall financial health.
3: Keep Debt Low
One of the simplest ways to improve your credit score is to keep your debt low. The less debt you have, especially on a revolving line of credit, like a credit card, the better. And that means paying off high-interest loans and debt as soon as possible. A lower debt-to-credit ratio (aka debt-to-limit ratio) will help improve your credit score over time because it tells creditors you’re more likely to repay them. The less debt you have, regardless of its interest rate, will always be beneficial to improving your score. Also, make sure you pay any bills on time; if there are late payments in your credit history, make sure they are current before attempting to repair or build up your credit. To track which bills need to be paid when setting up reminders using tools like Due and Wunderlist or get an app for tracking all household bills such as those found in MoneyHub’s App Directory. If you have any late payments in your past, consider paying those accounts first so that when lenders do look at what’s called a credit report snapshot (as opposed to a full report), they can see that all outstanding debts are being responsibly handled by you.
4: Don’t Spend What You Don’t Have
This may seem obvious, but if you’re not spending what you don’t have, you can’t go into debt. If you want to build good credit and improve your credit score, it all starts with limiting your spending to what you have in your account. A recent study found that credit card users who carry a balance accrue $4.5 billion worth of debt each year—that’s $1 billion more than 10 years ago! Don’t let that happen to you by living within your means and paying down any outstanding debts each month. Live frugally until your balance is zeroed out—and then keep it there.
5: Know Your Score
A great place to start with improving your credit score is to understand what goes into calculating it. Your credit score is calculated based on 5 key factors. The most important one is your payment history, which counts for 35% of your overall score. This includes things like paying on time, how much you owe, and how long you’ve been using a given line of credit (e.g., revolving credit versus installment). One good habit that can help improve payment history? Paying more than your minimum balance due (use our quick tool to find out what yours is) can significantly boost your score over time. Second in importance—accounting for 30% of your score—is amounts owed, meaning balances and limits across all accounts.
6: Start Saving and Investing Today
The most important thing you can do to improve your credit score is also one of the simplest: Start saving and investing today. The more money you put away in a savings account, 401(k), or IRA, and then let compound over time (through investment returns) with regular contributions, increases your net worth. And increasing your net worth is one of the major ways to improve your credit score. Whether it’s through a traditional retirement account like a 401(k) or an employer-sponsored matching program, or through something like an individual retirement account (IRA), make sure you’re putting enough money aside so that every paycheck goes toward at least one of these savings vehicles.