If You Don’t Have Excellent Credit, Start Doing These Things Now

If your credit score needs work, it may be time for a little personal finance 101. Armed with the right knowledge and practical finance tips, you can start improving your score today.

1. Understand Why Your Credit Matters

Where does your credit score come from? There are three major credit-reporting bureaus in the United States:

  1. Experian
  2. Equifax
  3. TransUnion

These bureaus are responsible for collecting consumer financial data (including credit card debt, bank information, and loan details) and calculating credit scores based on that data (and other factors). Scores can range from 300 (poor) to 800 (excellent), though most realistically fall somewhere between 600 and 750. Your credit score is then used by lenders to determine your eligibility when you apply for a loan or even an apartment lease. You can view your credit score anytime through free online platforms like Credit Karma.

Ultimately, your credit score matters because it’s one of the biggest determining factors when you apply for a mortgage, personal loan, auto loan, or any other type of financing. Many landlords and property management companies (and some employers!) may also require a credit check as part of the application/screening process.

2. Learn What Affects Your Credit Score

Now that you understand why your credit score is so important, it’s time to dive into the many factors that can impact your credit at any given time.

The major contributing factor to a person’s credit score is their payment history. If you make your current loan payments on time, this will boost your credit. If you’re late on even one payment or miss it altogether, this can cause a serious hit to your credit score. Your total debt and the length of your credit history can also have an impact on your score, as can your credit utilization (the amount of credit you’re currently using versus what you’re eligible for).

3. Start Tracking Your Credit

Not sure exactly where your credit score stands? There are plenty of ways to obtain copies of your credit report and monitor your score from month to month. First of all, understand that you should never have to pay to get your credit score! By law, you are entitled to one free copy of your credit report from each major reporting bureau per year. By pulling a copy of your report each year and reviewing it for errors, you can stay on top of your credit with confidence.

There are also plenty of free online platforms, like Credit Karma, that allow you to access and track your credit score anytime you want.

4. Take Steps to Improve Your Score

If your credit isn’t well established or if you have a less-than-stellar score, it’s important to understand that you can’t boost your credit score significantly overnight. In reality, improving your credit will take months and years of hard work–and your score will only increase gradually.

The single best way to improve or establish credit is to simply make all your payments on time. If you’re having trouble affording a payment, contact your lender directly to see if they’ll work with you on avoiding a late-payment report to the credit bureaus. Ideally, you should also keep your credit utilization percentage under 30%.

A little knowledge can go a long way when it comes to improving your credit (and thus your ability to obtain a mortgage or any other type of loan), so be sure to keep this information in mind as you move forward. With enough planning, hard work, and discipline, you can build your credit score up to a number you’ll be proud of.

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