Having a poor credit score makes it difficult for you to purchase real estate, obtain credit financing, and get approved for credit cards. Worse off, bad credit scores put you on the hook for higher interest rates which makes the loans and credit lines that you obtain more expensive upon repayment. Even if you do not have plans to apply for financing, a good credit score saves you money in other avenues including lower insurance premiums. If your credit score is below the recommended FICO score, you may be wondering how you can increase your score. As hopeless as the situation seems, poor credit does not last forever. There are major financial decisions you can undertake now to begin rising your credit score. Start practicing these smart credit habits today to stay on track.
Check your credit report regularly
Reviewing your credit report is the base for understanding why these are what makes these credit habits smart. A credit report is a record of all debt, credit management, and repayment history. It may also contain information about your accounts that may have undergone repossession from collection agencies. Sign up for a company like Credit Karma so you can check your credit score and report regularly for free.
Track credit card purchases
Credit card utilization has a significant impact on credit score. If your credit score left you without a credit card, you will need at least one new account to help rebuild your credit. Although a vast majority of the people desist from credit cards after a bad score in fear that new credit cards are trouble, avoiding credit cards makes it more difficult to raise your rating. However, your new credit card should be used appropriately without going beyond the 20% limit.
Pay off outstanding balances regularly
Your payment history is a high impact factor for your credit score. Usually, the amount of debt you are carrying represents as a proportion of your overall credit accounts for 30% of your credit score. If you have positive cash flow, you can choose the debt avalanche method where you pay off all credit with high APR then proceeding to those with low APR or the snowball method where you make minimum payments on every card every month.
Replace bad credit with good credit
Rebuilding a damaged credit score takes time discipline on your financial spending habits. Although patience is not a factor used to calculate your credit score, you will need it if you are in the process of repairing your credit. Continue monitoring your credit, paying debts on time, and keeping your credit on check each month. Over time you will build your score and be able to obtain better financing.
Keep building better credit habits
As the adage goes, “if you do what you have always done, you will get what you have always gotten.” Therefore, to build smart credit habits, replace your poor financial habits with new ones. Do not charge for liabilities and things you cannot afford or skip repayments as these will further damage your credit. Keep in mind that old spending habits might leave you with a worse score. Improve your spending habits and build your score.