Creditworthiness is determined by a three-digit credit score and can be the key to a healthy financial life. Good credit is a determining factor when it comes to taking out a mortgage, car loan, student loan or credit card with a low interest rate. Credit can also affect utility costs, insurance rates, rental applications, and even your ability to get the job you want. A low credit score makes it harder to do any of these things and can potentially put stress in your life.
The best plan is to never end up with your credit upside down in the first place; however, in the unfortunate event that arises, there are proven strategies for flipping your credit. Below are some suggestions for improving or maintaining a positive credit score.
1. Get a Free Low Interest Credit Card: A great way to get a good credit score is to buy a credit card that offers a low, fixed interest rate and doesn’t overwhelm you with fees. Champion Credit Union offers a flat, low-rate credit card with no balance transfer or over-the-limit fees. Don’t sign up with the first credit card company you find on a Google search or ask for help in the mail. Do your research and make sure you partner with an institution that suits you and your lifestyle.
2. Check your credit report: It’s easy to get your credit score these days, but every once in a while you’ll need to print and review your full credit report to see what works for or against you. Factors that contribute to a higher score include a history of on-time payments, low balances on your credit cards, a mix of different loan and credit card types, older credit accounts, and minimal applications for new credit. In contrast, late or missed payments, high credit card balances, collections and ratings are major negative factors for the score. Quick fixes include paying off revolving credit, removing inaccuracies, and becoming an authorized user on someone else’s credit card bill.
3. Understand the FICO Score† Over 90% of lenders use the FICO credit score, which is based on the following five factors:
With this in mind, try to make all payments on time and avoid late payments at all costs, as payment history is number one on the list. In addition, create systems to help you stay on track, such as automating invoices with instant withdrawals, setting reminders on your phone, or creating a filing/timeline system. Some people have set up accounts with a credit card and then pay off the credit card every month.
4. Keep 30% or less credit usage: This refers to the portion of your credit limit that you are using at any given time. There are two ways to help with the use of credit. The easiest way is to pay off your credit card balance in full each month. If that’s not possible, try to keep your total outstanding balance at 30% or less of your total credit limit. A second helpful tactic is to ask for a credit line increase, as long as your purchases don’t increase at the same time. With online access to your credit card account, applying for a higher limit can be done in minutes.
5. Work on keeping old accounts open: Remember that credit card you got in college? Don’t close it. The age of your credit line contributes greatly to your overall credit score. Keep old bills open, even if they’re paid off and you don’t plan to use them. It is not a good idea to close accounts with zero balance if you have other cards with balance remaining. This has a negative effect on your credit utilization ratio. Furthermore, if you have delinquent accounts, try to resolve the issues instead of closing them completely.
6. Consider Consolidating Your Debt: If you have several outstanding debts, it may be to your advantage to take out a debt consolidation loan from a bank or credit union. Then all you have to do is focus on one payment and more than likely you will find a debt consolidation loan with a low interest rate. A similar tactic is to transfer high balance credit card balances with a variable rate to a credit card with a lower rate. Credit card companies often offer promotions such as 12 to 18 months of low or zero interest on the amount transferred.
Building good credit or repairing low credit won’t happen overnight, but if you follow these suggestions faithfully, you’ll see significant improvements. Putting in the work pays off. Finally, if you have young people in your life, teach them these skills when they are teenagers so they can grow up with healthy lines of credit.