What is a credit card score, how do I find mine, and how do I make sure it is good? If you are struggling to answer any of these questions, wonder no more- as this article will give you five easy ways to improve your credit score. You never know, you might already be doing some of them!
You can start developing and maintaining your credit card score ("credit score") at any time. If you have never looked into your credit score, today is a perfect day to start! While it can get a bit complicated, we have created this simple guide to improving your credit score to make it easier to understand the language, allow you to speak to creditors and collectors with ease, and boost your credit score with effective tactics.
Overall Questions about Credit Card Scores
What Is Credit?
Your ability to get things (services, goods, etc.) based on your presumed ability to pay in the future. Have you paid off debts or bills in the past? If so, you are more likely to have good credit. If you have good credit, companies and banks will trust you to pay later if you do not pay for something now.
What Is a Line of Credit?
A line of credit is how much credit (essentially trust, in dollar amount) a bank or company will give you. If you have good credit by demonstrating a strong likelihood you will pay your loans and bills, you might get a high line of credit and they will probably loan you a higher amount of money than someone with a lower credit score.
What Is the Difference Between a Credit Card and a Debit Card?
A credit card allows you to make purchases based on credit. You are not directly using money to pay for goods and services. The money you spend will be billed to you at the end of your billing cycle and you pay then. This can give you the opportunity to show companies and lenders you can and will pay the money you owe in a timely fashion. Though, be careful, because this is also an easy way to get yourself trapped in debt.
Unlike a credit card, a debit card takes money directly from your bank account to make purchases. You are spending your money each time you make a purchase. Debit cards help you manage the money you already have available, but also are more prone to being stolen and depleted than credit cards.
What Is a Credit Card Score?
A credit score is a numerical value attached to your credit. It is a number that ranks your presumed ability to pay back what you owe. The credit score scale ranges from 300-850.
Why Do You Want Good Credit?
Your credit card score will help lenders determine whether they will they will approve you for lines of credit or loans. Good credit scores can also lower your interest rates. Good credit scores often lead to quick approval on home loans, car loans, rental properties, and more.
What Is a Good Score?
Different lenders have different credit score requirements, but the higher the better. Credit scores higher than 700 are considered good.
How Can I Find My Credit Score?
There are dozens of free online credit score calculators. You can also check your bank account statement as many banks have begun posting credit scores along with monthly statements.
Based on the Fair Credit Reporting Act, you are also entitled to an annual free credit score report from three major credit score reporting agencies. Check out AnnualCreditReport.com, among other websites, to get your free reports.
After you have received your credit score report, spend time checking its accuracy. Your credit score report is so important because, if there are any errors, you need to get them fixed as soon as possible. Consider the following questions as you look through your reports:
- Is my personal info correct?
- Are all of my lines of credit listed?
- Are there late payments listed on the report I know I made on time?
- Are there accounts or applications I didn’t create?
- Are there any expired (decades-old) pieces of information still on my report?
Now that you are familiar with the credit card lingo, keep reading to discover how you can improve your credit score and keep it where it needs to be!
Get a Line of Credit
First things first, get a line of credit! If you have never had a credit card or any lines of credit, you will have a low credit score just because you have no history of being able to pay your bills on time. A good credit score can take up to five years to build up, so if you are new to the credit game, do not expect your credit score to skyrocket overnight. Rather, be intentional about improving your score and work diligently over time. You will get there with patience and persistence!
A simple way to do this is to open a credit card and only use it for small purchases you can pay off quickly. This will establish your reliability and your credit card score will improve, albeit slowly. It can take between 3-6 months for a new credit score to improve and the longer you maintain a positive credit history, the higher your score will be.
Pay On Time Every Time
This is probably the most important tip in improving your credit score: pay your bills on time, all the time. Do whatever it takes to make sure you are paying your bills by or on the due date: set reminders on your phone or computer, talk to your bank to adjust your pay schedule to mirror your paycheck schedule, set up online payments.
Late payments can stay on your credit report for up to seven years! Do not let one late payment destroy all that work. Rather, be proactive! Reach out to your bank to see if they can forgive one late payment, especially if you have a strong history of paying on time.
While there are certainly other factors in establishing and maintaining a good credit score, this is the biggest and easiest thing you can do to keep your credit score steady and high.
Do Not Open New Accounts Rapidly
Especially if you are a new credit card holder or are just establishing a credit history, opening new accounts in quick succession can look risky to lenders. Additionally, all your accounts factor into your overall credit score and, because you have no history with new accounts, they will lower your score. Just because you have a balance on one credit card, opening a new one will not distract from or erase the old one. In fact, it will lower your score.
Watch Credit Card Balances
A credit card score is also partially determined by the percentage of money you spend each month as compared to your credit limit. Try to keep your monthly credit card balance at or below 30% of your credit card limit. One way to avoid a higher balance is to pay your credit card balance throughout the month instead of just once. Check with your credit card company to see if they will allow this.
Credit card score reporters also look at how many credit cards you have with balances. The fewer cards you have with balances, the better. Even if the balances are low, it is better to have just one credit card with a balance of $100 than two credit cards with balances of $50 each.
Avoid Credit Card Debt
If you can avoid credit card debt, do it! Pay your bills on time and pay off your debts as quickly as you can. Consider talking to a financial advisor or to the debt collector about your options. It may be possible to consolidate your debt or take out a loan with a lower interest rate to pay it off.
However, if you have paid off a debt, whether a car loan or account balance, keep that on your credit record! This shows exactly what lenders what to see - that you will pay off your loans successfully. Just because you have finished paying, do not try to get all evidence of your loan off your record. Having evidence you have paid off major loans can raise your credit score because it indicates responsibility and trustworthiness on your behalf.
Credit, credit card scores, and lines of credit can be pretty intimidating, but improving your credit score does not have to be difficult or time-consuming. Essentially, having a good credit score means you can manage your money well. Do not overspend, manage a few low-interest credit cards efficiently, pay your bills on time, and avoid debt when and where you can. Using these simple five tips, you will improve your credit card score (and amaze your friends and family with your financial knowledge)!
Even if you have had financial difficulties in the past, you can still raise your credit score! Eventually, all financial mishaps (bankruptcy, foreclosure, etc.) will be removed from your record. However, if you do not put in the work to start anew, your credit score will remain low even without those major hits bringing you down.
Do not settle for this. With the tips you received in this article as well as patience and determination, you can improve your credit card score. Start today!