If your score is less than perfect, you know that buying a house or car, getting a loan for school, or opening a new credit card can be difficult - if not impossible.
However, if your credit rating would make a banker or loan officer cringe, all hope is not lost. There are some easy ways to improve your credit score and do the things you want to do in life without being held back. Below, we outline three easy ways to boost your numbers over time and push your score in the right direction.
Pay bills on time
Paying your bills on time might seem like common sense, but many people struggle to make their payments on time. Your payment history makes up a whopping 35% of your FICO score, so if you're overwhelmed or having trouble juggling multiple bills at once, automate your payments online or keep your bills in a prominent place in your house.
As soon as you receive a bill in the mail, clearly write the due date on the front of the envelope and/or set a reminder on your phone. Even the bills you pay late or skip altogether are included in your history, so it is critically important to be on top of things and make sure you have all your ducks in a row. If you are sitting on a stack of late bills, tackle the oldest ones first.
Accounts that are three months late will have a bigger negative impact than those that are only two months or one month late. In order to catch up on your payments, pay off the most past-due accounts first and work your way up from there. Once you become a diligent bill-payer, your stress level will decrease and your credit score will increase.
Become an authorized user
It's important to become an authorized user if you have no credit history or your credit history is a bit dicey. You will need to convince a relative or friend to be added to his or her existing credit card account - so be sure to ask as nicely as possible!
If you find someone who is willing to add you to their account, you can begin to either establish or repair your position in the all-important realm of credit. In order to make things official, put an agreement in writing that outlines how much you can spend each month, as well as how you will pay your share of the bill.
If you want to uphold your end of the bargain and be viewed as a dependable adult, do your part and follow through with what you have put in writing. In other words, don't go on a shopping spree and buy every electronic in sight or leave your co-signer hanging when it's time to pay the bill. The point of becoming an authorized user is to learn to use credit responsibly, so make sure to do just that.
Under-use your cards
Let's say you have a credit card with a $10,000 limit. At first, you may be jumping for joy or squealing with excitement just thinking about all the cool items you could buy. However, your euphoria will be short-lived, because having a $10,000 limit does not mean you should be spending $10,000 - or anywhere near that number.
In order to keep your score high, you should be using no more than 30% of your available credit and ideally even less. To maximize the "credit utilization ratio" component of your FICO score, do your best to use about 10% of your limit.
It doesn't matter if you pay your bill in full before it's due, because the credit bureaus will still be suspicious if you use the majority of your credit. In other words, they might think your spending habits are out of control and be wary of lending you money.
If you prefer to be cash-free, but are afraid of overusing your credit cards, ask your creditors to raise your limit. Be careful, though: Raising your limit only works if you can trust yourself not to simultaneously increase the amount of money you spend.
In general, the higher your credit score, the more money you can save - in various aspects of life. Those three digits can influence whether you are approved to rent an apartment, how much you'll need to shell out for auto and home insurance rates, and even the interest rates on loans such as your mortgage. If you follow the aforementioned tips, you will be able to boost your credit score, and in turn, alert lenders that you will, in fact, pay back your debts.
In the end, it's important to aim high, but don't expect perfection. Only about 0.5 percent of consumers achieve the top score of 850, so don't beat yourself up if you don't hit that magical number. Even with a lower credit score, you can still get some of the best rates available.