Your credit score is a huge part of your financial picture and how you manage your credit cards is now very important to your identity. Not only does your credit score affect your interest rate when making big purchases (such as a car, a home, or even a loan), but it gives those who don’t know you a taste of who you are.
Your credit score informs sellers that you are looking to work with you just how responsible you are as a person and as a consumer. It might not sound fair, but that is the reality of our credit scores. Someone with a high credit score will gain more trust from sellers faster than someone with a low credit score.
So how can you sustain and boost your credit scores?
1. Know Your Credit Score
Before you figure out what you can do to boost your credit score, you must know where you stand. There are many commercial websites that claim they offer free credit reports but most of them will bill you for their services if you don’t cancel after a certain amount of time. Ashley Jacobs mentioned in her article, “10 (More) Things You Should Never Buy”, that the Federal Trade Commission created a law so that everyone can have access to one free credit report per year. Check out www.AnnualCreditReport to request your free credit report.
2. Treat Your Credit Card Like Cash
A credit card comes in handy when you don’t have enough cash to spend on big purchases. It allows you to make payments so that you are able to organize your cash flow easier. But the one mistake some people make is that they treat the credit card as an “I will come up with a way to take care of this later” card. With that mentality, you will accumulate a higher balance in your account than you may be able to pay off. Instead, your mentality should be…”treat your card as cash”. You should know that you have enough cash to pay off your purchase now if you have to, or at least 50% of it. Of course, this only applies to purchases that are non-investment items. When it comes to an investment item, such as a car, you should ensure that you be able to pay more than the minimum payment every billing cycle. How you choose to utilize your card will have a major affect on your credit score, so be smart about it.
3. Pay More Than The Minimum Required Payment
Paying only the minimum every month is like doing the average C work all the time, it will not benefit nor hurt you. If you are short and aren’t able to pay more than the minimum, just make sure that you do pay. Paying the minimum will not hurt your score and it will certainly keep your credit score from dropping. But as I have recommended, you should know where your cash is before you make a purchase. One great way to boost your score is to always pay off your balance when the bill rolls around. Put the cash (the total balance amount) away in a separate checking account and use it to pay off your bill when it is time to. This way, you are using your credit card as an advantage and receive its full benefits.
4. DO NOT Attempt To Apply For More Credit Cards If You Have Previously Been Declined
One of the biggest mistakes most people make is to keep trying to apply for more credit cards, especially if they have recently been declined. If you want to have more than one or two credit cards, make sure that you are keeping up with your bills. You can have as many cards as you feel you can manage but if you forget about one tiny payment and let it sit on your card for too long, it will affect your score more than you can imagine. If you have been denied after applying for a credit card, wait at least 90 days before you try again. Usually, if you have been denied it is because of your credit score. So instead of reapplying, focus on raising your credit score by paying off debt and outstanding bills. Then allow for your rebuilding effort to be posted on your credit reports.
5. DO NOT Combine Your Balance
If you have more than one credit card and wish to combine all of your balances into one card, think again. Your credit balance should be at 30% or lower of your credit card limit. Therefore, if your credit card limit is $5000, you should not have more than a balance of $1500 sitting on your card. In addition to your individual account, the overall balance of your credit card should also be 30% or lower of the overall credit limit. This means that if you have five credit cards with a limit of $5000 each, you should not have a balance of more than $7500 in total. The amount owed on your credit card is one of the most important factors in your credit score; it will affect your score negatively.
So, be a smart consumer and be in control of your personal finance. Having good credit is something that everyone should strive for. Not only does it say that you are a responsible and trustworthy person, but having good credit also means you will always receive the best interest or deal when applying for a loan or purchasing big items.
Have any tips for boosting your credit score not listed here? Please share them in the comment section!
