FTC: This post is not sponsored and I am not a financial advisor. All thoughts and weird opinions are my own.
In the New Year we are all about building financial freedom and improving our financial literacy. In doing so we are starting to focus on some very important aspects of building financial freedom. One of those main important aspects is: credit. Your credit score tells the world just how responsible you are when you borrow money, and thus makes it easier for you to get better interest rates to borrow even more money.
There are several factors that determine how your credit score is calculated (I outline them in great detail here for you), and once you’ve damaged it, it can be rather difficult/tricky to improve it. It doesn’t mean it is impossible, it does however mean there are a few hurdles you may have to jump in order to boost your credit score. And I’m going to break down those hurdles for you in quick easy steps/tips. Let’s proceed
4 Ways To Boost Your Credit Score
1. Keep Your Healthy Accounts Open + Active
Many people (including myself) have made the mistake of closing my credit accounts once I’ve finished paying them off. Especially if it was an account that I struggled to pay off, or really had no business opening in the first place (ie: store credit cards). However, if you’ve had an account open for quite a while that is a benefit when calculating your credit score. Once you’ve paid off an account, it is in your best interest to keep it open and maintain a healthy active account. That means making small purchases that keep your debt to income ratio low, and shows that you are responsibly making payments. Now although I did close all of my store credit cards, I kept my first credit card open and has been my second longest running line of open credit (only coming in second to my student loans that serve as my first open line of credit… yay me)
2. Maintain A Low Debt To Credit/Income Ratio
I’ve spoken about this a few times but if you’re new here, or just simply forgot your debt to income ratio is the equation that the credit bureaus heavily use in order to calculate about 25% of your credit score. By maintaining a low debt to credit used/ income ratio you are easily and quickly setting yourself up to see an increase in your credit score. Many other factors in calculating your credit score take a while to truly make a dent, where as your debt to credit ratio is calculated more often and can change the amount of points you gain or lose.
Try not to use more than 10-20% of your available line of credit, and keep your debt below 25% of your income. This can be very hard for many millennials that have thousands of dollars of student loan debt (trust me… it was the biggest negative factor on my credit score calculations for a long time). The best advice I can give you… which really isn’t going to be mind blowing is to focus on paying off your debts to increase the ratio in your favor. It doesn’t matter if you only make small dents in your debt, on a yearly basis it will show more positive growth and deem a positive outcome rather than leaving your total debt amount stagnant/ or more than what you actually borrowed.
3. Open A Pre-Paid Line Of Credit
There are two major reasons you want to open up a pre-paid line of credit if you are struggling to boost your current credit score. If you have fairly bad/okay credit you may find that it is difficult to obtain new lines of credit with a decent interest rate. You also may run into occasionally not being approved for new lines of credit at all, depending on just how bad your credit score might be. By opening up a pre-paid line of credit you are showing that you can responsibly use credit without risking going over the limit, or not being able to pay back what you have charged.
You can find pre-paid credit lines in most drug stores, banks and credit unions.
4. Pay Your Bills On Time
I know this goes without saying, but the longer amount of time that you make all of your payments on time, the better outcome it will have on your credit score. Even a few late payments here and there can be a detriment, so you want to always try to make your regularly scheduled bill payments on time.
Following these four steps are a sure fire way to set your sights on the uptime goal of boosting your credit score into the 700s and beyond.
Until the next time,
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Hey there! I’m Melissa, co-founder of Trials n Tresses, natural hair and beauty lover, binge tv watcher and lover of life. When I am not creating content for TNT, I’m busy teaching the future of society.