Do You Know How To Fix Your Credit Score? Here are 5 WaysApr 10, 2018
Do you have a lower credit score than you’d like? Credit scores are sensitive, which means your score could drop quickly. Here are five ways to get your credit score moving in the right direction.
- Do the work yourself
You may have heard of companies that promise to raise your credit score, or even remove bad credit history. Be wary of anyone who says they’ll do this on your behalf — the only way to truly improve your credit score is to use good credit and debt repayment practices consistently over time to build a history of good behaviour.
- Use the right kind of debt, in the right amount
A good way to build a credit history and improve your credit score is by using a major credit card in the right amount.
Some major debts, such as student loans, aren’t always counted on your credit history as examples of good debt repayment. (However, if you do miss student loan payments or default on your loan, it will probably be reported to the credit bureau, and it will bring your score down.)
The thing is, you need to use your credit card strategically to get a good score. Aim to keep your total usage (your credit utilization ratio) under 35 per cent.
That means that of all the total credit you have available to you, you should have 35 per cent or less of that in use at any given time.
That shows lenders that you can access credit responsibly without risking a default if you can’t pay it back.
Check out this article on Nerd Wallet to learn more about your credit utilization ratio and how it’s calculated.
- Hold on to extra credit cards
We’ve all watched the scene in the movie where the in-debt protagonist is forced to cut up a credit card by a supportive friend (or angry shop keeper!).
If you’re looking to get out of debt and want to protect your credit score, it might seem like the logical thing to do.
But closing off a card could make it harder to build a good credit history.
Each card you have contributes to your total credit availability, which contributes to your credit utilization ratio.
If you have three cards with $5000 each, you have a total of $15,000 available credit.
According to the credit utilization ratio, using above 35 per cent of your total available credit can set off alarms for lenders. With $15,000 of available credit, you could use just over $5000 before you go over your 35 per cent credit utilization ratio.
But: If you cut up two cards to “eliminate the temptation,” you’ll reduce your available credit, which reduces your credit utilization ratio to less than $2000. That doesn’t give you much breathing room!
Instead of cancelling your cards all together, just focus on keeping your debt limit well below 35 per cent. That will help you to build a better credit score.
- Pay on time
Paying your bills on time doesn’t seem like much of a hot tip, but it’s critical.
When you’re late or miss payments, it’s reported on your credit history and will contribute to a lower score.
Every time potential lenders review your years of credit history, those missed or late payments will impact if they consider you too high of a risk to lend to.
- Protect your score from others
This one is two-fold.
First, remember that identity theft and stolen financial information is a real risk. You need to check your credit score and report regularly to identify any fraudulent or suspicious activity so that someone else’s consumer debt doesn’t become your problem.
Even if you aren’t responsible for the debts, it can take time to rebuild your history and improve your score.
Second, be careful about co-signing. It’s tempting to help a family member or friend out if you have the credit history and score that could help them access money they need — whether it be for a vehicle, a home, a student loan, or other loan.
But your credit score is sensitive, and any late or missed payment on their end could be impacting your score. And leave you spending months or years rebuilding your score. And if they default, remember that you’ll be on the hook for their debts.
Read more about how to repair your credit score over time at MyMoneyCoach
It might take some time, but with consistency and care you can build your credit score up to where you want it to be.