If you ever want to borrow money – whether for an emergency or to make an investment – you’ve got to have a good credit score. It will make the borrowing process ten times easier and more importantly, it will get you a lower interest rate on your loan. In the end, it will put more money in your pocket (and not the bank’s). Whether you’re just starting to build your credit or need to increase your credit score, here are some quick and easy fixes that could make a huge difference:
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Automate All of Your Payments
There are a billion reasons that you should automate every single payment you can, but one of the top reasons is to optimize your credit score. Banks want to know that you always make your monthly payments and more importantly, that they are paid on time. When you automate the process, you eliminate the chance that you will accidentally forget. This is a quick and easy fix that will save you thousands over time.
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Keep Your Debt-to-Credit Ratio Low
Banks will look at your debt-to-credit ratio, which is a measure of the amount of debt you have used vs. the amount of debt you’re allowed to take out. Basically, you want to stay away from your total limit. So don’t max out your credit card every month! They want to know that you’ve got some self discipline and know how to manage the money they’ll be lending you.
Increase Your Credit Card Limit
One easy way to improve your debt-to-credit ratio is to increase your credit card limit – but DON’T spend more than usual. If you’ve been a relatively good customer in the past, you usually won’t have any problem increasing your card a bit. Just give them a call and ask – that’s all it will take.
Dispute Any Errors on Your Current Credit
If you’re trying to maintain good credit, the last thing you need is something showing up on your credit report that shouldn’t even be attributed to you. This can often be a mistake, but sometimes it’s an indication that someone else is using your identity, which can be a huge red flag to get things checked out! You should periodically check your own credit to make sure nothing fishy shows up and if you see an error, you should contact one of the major credit reporting agencies to get things fixed. There are 3 well recognized credit reporting agencies that you can contact and all 3 are required to provide you with a free credit report every 12 months (so take advantage of this!). They are:
Hire a Company to Monitor Your Credit
The three credit agencies that I just mentioned – Experian, TransUnion, and Equifax – all offer services that watch your credit reports for you and alert you immediately to anything that looks out of the norm. In today’s world of easy identity theft this really isn’t a bad idea, especially if you’re at a point in your life where you need your finances and credit to remain stable. I know people that have had entire mortgages taken out in their name from people that have stolen their identity! If you’re really ready to start managing your credit, then this is a service worth using.
Partner with a Cosigner on a Loan
If you’re credit isn’t that great, then it can be hard to get a good interest rate – or any loan at all in some instances. If you have a parent, partner, or good friend that’s willing to cosign for you, however, then you have a great opportunity to increase your credit score by proving you’re able to manage the loan. Be aware that your cosigner will take the fall too if something goes wrong, so you want to make sure to take extra care with the loan.
Don’t Open Credit Cards Before Applying for a Loan
If you know taking out a loan is in the near future for you, you don’t want to be opening up new cards, even if it’s in an effort to help out your debt-to-credit ratio. Recent activity right before a loan never looks good, so it’s best to keep things looking clean and consistent.
Don’t Open Credit Cards Often
Opening a back-up card is ok, but don’t open a new credit card every time a retail location offers you one. Too many cards being opened all the time will look bad – not to mention it could get you in trouble with payments, even if it’s not on purpose.
Consolidate Credit Card Accounts if You Have Too Many
Too many cards is a bad thing. If you’ve got a whole bunch (even if you’re not using them) it’s time to consolidate and close out the ones that you don’t need. The first ones to get rid of are ones from retail stores that you don’t use regularly and don’t provide worthwhile incentives. You should always have one account with a major credit card company (VISA, MasterCard, American Express, etc), so if you can easily consolidate to those accounts.
In most instances, this is a no-brainer – who wants to file for bankruptcy?? But when you take a good look at your finances in certain circumstances, bankruptcy can actually seem like the best option – and maybe it is. But be aware that if you choose that path, you are hurting your credit in the worst possible way. A bankruptcy, in essence, is you telling your creditors that you’re not going to pay them. So it’s really no surprise that new creditors aren’t going to want to consider you. A bankruptcy generally stays on your credit report for 7 years, so that’s how long you’ll need to hang low before you’ll be credit-trustworthy again.
Good luck managing your credit! Once you get things running smoothly, your credit will take care of itself and it will be one of the greatest assets you have when it comes to building your wealth.