2020 reminded us of many things, from how to properly wash your hands to the need for a substantial emergency fund. Last year might be in the past, but the importance of bettering your physical and financial health remains.
One way to get your finances in order is by boosting your credit score. Good to excellent credit is key to securing lower interest rates and favorable terms on loans and credit cards, which leads to other financial benefits.
Unfortunately, improving your credit is a labor of love that can take several months to achieve. But that shouldn’t stop you — especially when you learn that giving it a boost is simpler than you think. If you follow these tips from the Motley Fool, you should enjoy much better credit standing by the end of the year.
Resolve Mistakes On Your Credit Report
One of the best ways to jump-start your credit health is eliminating bad marks dragging down your score. Disputing an error can increase your score by more than 100 points in just a few months, so it’s well worth the effort.
Begin by checking your credit report at Experian, Equifax, and TransUnion. You can usually order a free copy once per year, but the CARES Act allows you to order it every week for free until April 2021.
Check for any mistakes, particularly for late payments or accounts that were sold to a collections agency. If you notice an error, file a dispute right away. You can do this over the phone, the mail, or online through these links:
Pay Off Your Credit Card Debt
Credit card debt is a major player when it comes to your credit. If you have too much, it can affect your credit utilization ratio, which is your total debt against your available credit.
Conventional wisdom calls for a credit utilization of 20% or lower, so if your credit limit is $5,000, for example, you should avoid carrying a balance larger than $1,000 at a time.
If you utilize more than 20% of your credit, make an effort to pay off high-interest credit card balances. Once you get rid of it, your score should improve in as little as one to two months.
Consolidate Your Credit Card Debt
Consolidating outstanding balances is another way to improve your credit utilization ratio. Generally, you can do this in one of two ways:
- With a balance transfer credit card: These cards provide 0% APR on balances from other credit cards. This introductory period gives you time to get out of debt interest-free. Additionally, having another credit card raises your credit limit, which also helps lower your utilization.
- With a debt consolidation loan: This is a type of personal loan that you can use to pay off other types of debt, leaving you with a single monthly payment. These loans often have more affordable interest rates compared to credit cards and don’t apply to your credit utilization.
Rember to be consistent in your efforts to eliminate debt when you receive a balance transfer card or debt consolidation loan. Many people fall into the trap of overspending simply because they receive a lower interest rate. This will only offset any progress you make.
Pay Your Bills On Time
Payment history has the biggest effect on your credit score. Paying your monthly bills on time is the surest way to maintain your credit standing. If you wait more than 30 days to make a payment, your credit will suffer for it.
Paying your bills on time won’t cause a dramatic turnaround on your credit, but it will help it, especially if you do it consistently. If you frequently forget about due dates, consider setting up automatic transfers or alerts on your phone to remind you when bills are due.
Don’t Apply For More Lines Of Credit
Whenever you apply for another credit card or personal loan, your credit score loses a few points. This happens for two reasons:
- Lenders perform hard inquiries to determine your creditworthiness, which temporarily impacts your score.
- Receiving another line of credit reduces your credit history’s average age, which has a small effect on your score.
While both of these factors are marginal compared to credit utilization and payment history, it’s important to remember that the little things add up eventually. If you want to improve your credit score, you’ll have to play by the rules.
- Daly, Lyle. “5 Tips to Boost Your Credit Score by Over 50 Points in 2021.” The Motley Fool, 10 Jan. 2021, www.fool.com/the-ascent/credit-cards/articles/5-tips-to-boost-your-credit-score-by-over-50-points-in-2021/.