The simple guide to boosting your credit score
A very long time ago someone invented something called "darts". One of the most popular games enjoyed by "darts" players is called 501. Each player throws a round of darts and the corresponding score is deducted from the 501 figure. The first player to reach zero is the winner.
But what has that got to do with your credit score? Nothing - apart from the fact that we all aspire to a strange number: 840 (the perfect credit score). But what if your credit is performing below par? Can you improve it?
The answer is an emphatic 'yes' - you can boost your credit score - and here are a few tips on how you can do it:
Get a credit report
Ok, before we rush into the how, you're going to need to know your credit score. The reports will give you a detailed breakdown of your score and will also indicate which areas of your finances are dragging you down. Once you have this information you can go to work.
You can get a free credit report from AnnualCreditReport.com. Hint: whilst you're working on repairing or boosting your score you should monitor your credit history to ensure your efforts are paying off.
Pay off your debts
I know it's easier said than done but the fact is: the more debt you carry the worse your credit score is likely to be. The best piece of advice you can take away today is to blitz your credit cards. Start off by hitting the credit cards that are closest to the limit (some of our readers recommend credit snowballing).
By getting your card balances down below 30% of their limit you'll soon see an improvement in your score.
If you find this hard to do then maybe it's time to take stock of your outgoings and start to cut back on the things you really don't need. Paying your debts on time is critical: your payment history accounts for a massive 35% of your score, so missed payments can have an adverse impact.
If you want help with working out how long it might take you to pay off your credit card debt or want to work out what payments you should make to pay off your credit card, use our credit card calculators.
Avoid applying for credit cards
Every time you apply for a card, the lender will carry out a credit check on you. Too many checks against your history can sound alarm bells to a potential lender and knock down your score. In addition, try not to apply for a new credit account whilst you still have another open because that will lower what is called your "credit age" and drive your score down.
It's easy to assume that shiny 0% balance transfer offer will save you money in the long term but, if you can afford it, you're better off paying off your existing card.
Ask your creditor for help
Crazy as it sounds, this option could prove invaluable. After all, if you default then the creditor will need to drag you through the courts and send out debt reclamation companies to recover their money. But the lender will only see a fraction of the money returned to them.
If you're experiencing hardship and your score is in the doldrums, ask your creditor for help. Explain the situation and, if necessary, speak to the National Foundation for Credit Counselling. You can then arrange payments that fall within your means which will reduce your commitments whilst ensuring you return to a consistent payment history.
Keep your existing credit cards
When you finally clear your debts, the first thing you may feel like doing is cutting up your cards, calling your lender to tell them what you think of them and then cancelling your agreement. But we don't live in an ideal world! Cancelling your cards when they are paid off can actually lower your score. Ironically, keeping open those no-longer-needed accounts shows potential lenders that you have a history of good credit behaviour. Ironic, eh?
Avoid new purchases on cards
Every time you buy something on your card you alter the ratio between your card balance and your limit (this is known as your credit utilization). The higher the balance on your cards the greater the impact on your ratio, which directly affects your credit score.
If you really need to buy something then don't be tempted to use the old trick of buying on your card and paying it over a number of weeks. Pay cash, if not - save for it.
Pay your bills on time
I alluded to this earlier - late payments hurt your score, badly. Keeping on top of your finances and loan payments is the probably the easiest way to get to the magic 850 figure. If you're not confident you can keep track of your finances using pen and paper then there are plenty of free personal finance tools that can help track your money and automate payments.
Get a secured credit card
If you're prone to impulse purchases that leave you short of cash and unable to service your debts then your score will suffer. But, even if you do have poor credit you can go some way to rectifying the problem by signing up for a secured credit card. When you sign up you'll need to give the lender cash up front - this acts as collateral and forms your credit limit. E.g. if you put down $1,000 then you have a card limit of $1,000. It may seem counterintuitive - after all, why not just spend the money - but it's not. A secured credit card shows that you are responsible and will improve your score through the maintenance of payment history
Building up your credit score takes time and effort so be patient. Obviously, patience isn't really a factor that will improve your score, but letting yourself lose control and going on a spending spree will hurt all the hard work you've put in.
Written by James Redden
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