Increasing your credit score is important if you ever want to rent an apartment, buy a house, or finance a car. Most companies use credit scores to determine your eligibility and if your credit history shows any signs of negligence, you’re likely to get denied. Thankfully, increasing your credit score is actually quite simple and it doesn’t matter how damaged or broken it currently is. A credit score can always be improved, provided that you follow these 5 simple tips.
1.) Reduce your debt if you’re still struggling
If you currently owe money on your credit cards, you need to immediately stop using them. Using your credit cards to improve your credit score is only recommended if you’re currently not in debt. If you still owe money, your main focus needs to shift towards paying it off. By not charging new things to your credit cards, each payment you make toward them will get you closer to being debt free. Creditors look at debt as a very negative attribute to your credit. If your debt is anywhere near your credit limit, this could be damaging your credit score. Anytime that you have extra money you need to apply those funds toward paying off your debt.
2.) Charge small amounts and pay the full amount every month
To rebuild your credit, you sometimes have to acquire more debt. The difference is that you have to handle the debt responsibly this time around. It’s best to start small and make miniscule charges to your credit card. This won’t place much financial burden on you and it will be easy to manage the payments. A good starting point is about $50 a month. Start by charging a few groceries or tonight’s dinner. At the end of the month, pay the amount off in full. Not only will this save you money by not having to pay interest, but it will also build your credit substantially. Small payments like this can accomplish great things for your credit score. Within a few months time, your credit will have improved considerably.
3.) Signup for Mint.com or any other finance management system
Mint.com is a free tool that lets you input your bank accounts, Paypal accounts, and any other financial accounts that you own. In doing so, Mint will track what goes in and what goes out. Not only will you see how much money you’re making and how much money you’re spending, it will tell you exactly how you’re doing it. Mint breaks down your expenses into categories and shows you how much money you spend on fast food, groceries, entertainment and utilities. For someone trying to rebuild their credit score, it’s the perfect tool to get organized.
4.) Setup payment reminders
Payment reminders will notify you when you’re approaching the due date of an upcoming bill. Mint.com actually has this technology programmed into its services, but there are lots of alternatives to Mint as well. Be sure to find one that works for you so that you will actually use it. Payment reminders are key to someone who’s in debt and needs to repair their credit score. Without them, you could forget to pay a bill which will damage your credit even further.
5.) Never finance or charge money to your credit card unless you have the cash
A good rule of thumb for someone that needs to increase their credit score is to never finance or charge any money beyond what they can handle. You should always have enough money in your bank account to cover your credit card payments. If you’re spending more money than you make, then you’ll quickly find yourself in debt and struggling with your credit score once again. Credit cards are not the same as loans but unfortunately, people often treat them as such.
Larry Smith works for www.wonga.com a short term money lender in the UK.
Category: Money Basics