Hopefully you’ve been paying attention and you care about your credit. But how do you get the all important credit score higher so when you need to get that mortgage for the new house you get a good rate? What are some of the things you can do to help build up your credit score?
First of all, you need to realize that in order to have a good credit score you actually have to have credit for them to “rate”. If you go around paying for everything in cash (or debit card/ check) then you’re just hurting yourself. You might be thinking that it’s the best way for you to stay within a budget and keep from messing with your credit. Although it’s true that if you rack up credit card debt and never pay on time then your credit score will be worse off, it’s something you’re going to have to learn to manage if you want better credit.
Manage your credit and earn a higher score
You see, the whole thing with credit is that the lenders want to see the proof that you’re able to handle the debt. If you don’t take on any debt then how are you going to show them that you can handle it? You need to start somewhere. You can’t just expect a bank to lend you a bunch of money to put down on a house if they don’t have proof that you have a history of paying your debts. They don’t want to take on those risky candidates.
Some might tell you that you don’t really need credit because you’re not buying a house anytime soon (or taking out a loan), so who cares? But credit isn’t just for buying cars and houses. You might need good credit for things like: renting your home, getting a job, or getting utilities like water, electricity, phone, and cable. You may find it hard to get some of these things if you don’t have good credit. Showing people that you have good credit shows them that you have be responsible with your money. Responsible is always a good thing when you’re trying to get that new job or that new apartment.
How to get credit if you don’t have a credit history yet
If you’re starting from the beginning and don’t have any credit then you need to start small and move your way up. It might be a bit harder to get a credit card if you’re new to credit, but you need to start somewhere. The good news is if you haven’t done anything bad to your credit then you can usually find somewhere that will give you a credit card. When you look around you should not apply for more than one credit card at a time. Once you get that one card you should stay with that one card until you’ve had a history of paying it off on time. Always pay it off in full every month so you can start building that credit.
What if nobody will give you a credit card, then what?
Well, if you’ve been bad with your credit in the past or if you’re not able to get a credit card for whatever reason then there’s still ways you can go about getting one. What you’ll need to do is go to your local banks and find out which one will allow you to get an account secured credit card.
What you’ll need to do is you will have to deposit money into your bank account and then the bank will issue you a credit card that is less than or equal to the amount of money you put in the bank. This way the bank lowered the risk that you won’t pay off the credit card debt. It’s kind of like putting your money in the account as collateral. Of Course, you should always pay off your debt in full each month and on time. This will help build your credit score.
Another thing you can try to do if the banks aren’t cooperating with you is to find a local pawn shop and take out a loan with them. Take that gold necklace you never wear over to them and see what they will offer you as a loan. You aren’t going to sell them your stuff, instead you’re going to pawn it off for some money. If you pay that money back on time (with interest) then you’ll get your jewelry back.
For some people that can’t get a loan any other way, going to a pawn shop might be a good option. Show the banks that you can pay off your debt on time and they might approve you for a credit card the next time you go in.
What else can you do to build up your credit?
If you want to raise that credit score to get a better rate on that big mortgage loan you need then you can start with a smaller personal loan. Taking out a small loan for medical expenses, car repairs, home repairs, or other small things should help boost your credit score. Of Course, you need to pay off your debt on time. Paying on time and in full each month would be even better.
Be careful with how much credit you use
If you want to boost that credit score you need to be smart about how you use that credit. One of the factors that lenders use to give you that credit score of yours is how much of the total credit that you have are you using? Good advise it to use between 10% to 30% of your total allowed credit for any particular credit card. So if your card has a $1,000 limit you should use between $100-$300 every month. If you’re using the top end of your credit every month you need to look into raising the limit on that card. Using the top end of your credit hurts your credit score even if you pay it off in full each month. Instead, you need to raise the credit limit on that card or get another card.
Talking along the same lines and concept you should think twice before you cancel a credit card. The reason for that is when you close a credit card it takes away that portion of your total available credit which will in turn raise the percentage of total credit that you’re using.
In other words, if you have 3 credit cards, one with a $5,000 limit, one with $3,000, and one with $2,000 that’s a total limit of $10,000. So if you’re using $3,000 in debt in total on those 3 cards that’s 30% of your total available credit. If you cancel that $5,000 limit card then your total credit available is only $5,000. That will make your $3,000 you use each month a whopping 60% of your total available credit. This will hurt your credit score. You want to keep that percentage under 30%.
Also, If you’re applying for other cards be sure that you don’t apply for more than one card at a time. Lenders don’t like it when you apply for multiple cards at once. To a lender that seems like a riskier type of person so you should avoid it. Don’t give them any reason to think that you are a risky candidate for a loan.
What else can I do to improve my credit score?
It should go without saying, though I’ll list it anyway, but you should pay off any debt you have if you can. You don’t want to be late on any payments, but even better is if you can pay off your debt in full each month. Not only will that improve your credit score but it will also save you money on interest. You don’t want to hold any credit card debt. Those rates are brutal. If you have multiple cards with debt then you should focus on the cards that are costing you the most money in interest first.
Check your credit score at least once a year and check it on all three of the credit agencies. Fixing errors on your credit report early is always better so that it gives you more time to “heal” your credit score before you need that next loan. Some errors on your credit report can be really costly so you need to be diligent about checking your report every year. If you can’t or won’t do it yourself then you should find a service that does it for you.