You may be surprised to learn these out-of-the-box ideas on how to improve your credit score.
The majority of North America’s financial infrastructure is based on credit. Credit allows people to purchase things they can’t pay for upfront in cash. With credit, you can get a loan from Turbo Payday Loans, home loan, business loan, or even a car loan. We live in a credit-based economy, and you’ll find it hard to access financial services and products with a bad credit score.
Fortunately, there are ways to improve your score. You may not be privy of what happens behind the scenes at the different credit bureaus, but there are workable strategies that can be used to improve your score. You may think that paying off your debt on time is enough to improve the score. It goes beyond that and having a good credit score requires a lot of work.
How Credit Scores are Determined
There are three major credit bureaus in the U.S. They are Experian, TransUnion, and Equifax. Each of these bureaus uses a scale from 300 to 850. A score of above 670 is considered good by most lenders, and a score of above 740 is seen as very good. The scores might slightly differ among the different bureaus.
Payment history is going to be a big determinant in your credit score. One of the easiest ways of building a healthy credit score is making sure all the bills are paid on time. Here are some other ways you may be able to improve your credit score.
1. Keep Unused Cards Open
According to Experian, the average American has three credit cards. There are those who could also have four or more cards. There is a high chance that you’ll not be using all the cards in your possession. You should resist the temptation of calling a credit company to cancel a card. Credit utilization levels usually account for almost a third of the overall credit score. By canceling your card, you’re decreasing the total available credit.
Lenders like it when credit utilization is low because it means you may be more likely pay off new debt. You don’t have to use your credit cards regularly to keep them open. You can decide to use them occasionally like twice a month which should be more than enough to keep the utilization low. There is an exception to this rule. This is in the event where the unused cards have high annual fees.
2. Be a Good Tenant
Housing has to be one of the biggest monthly costs for most people. There are instances where the rent payment can also be attributed to your credit history. This may not be possible if you have a landlord without the resources and time to report the payments to the credit bureaus. You might be fortunate if you live an apartment complex that is managed by an external company. You can ask the landlord or management to report your rent payments. You just have to make sure you’re paying on time because delayed or late payments can hurt your credit score.
3. Be an Authorized User on Someone Else’s Card
You can reach out to family and friends and ask them if they’d be willing to lend you their credit cards. This is one of the unconventional ways to establish credit. You should, however, proceed with caution because your score can be intertwined with theirs. Both the bad and good credit scores will reflect on all the accounts. Using someone else’s credit card lets you take advantage of building upon an already good credit score. As a result, you can qualify for better financial products and services. It is important to note that you might not have all the privileges that the primary account holder enjoys. You can also opt for a joint account where you’re legally required to pay for debts that may accumulate if you’re the one using it.
4. Return Borrowed Books, Tolls, and Parking Tickets
As silly as it may sound, those unreturned library books could be messing with your credit score. The library has the right to report you to the credit bureaus if you overstay with the books. This usually affects recent grads who are struggling to build a good credit score after college. The penalties for the unreturned book can be in the upwards of $200, and your credit score could negatively be affected after taking years to build it. Paying the fees doesn’t fix the score, and you have to rebuild it again.
Unpaid tolls could also have an impact on your credit score. They are so common, and one can conveniently forget about the account balance. The toll sensors automatically record your plate, and if you miss a payment, you can be reported to the credit bureaus. The same goes for parking tickets. You should make sure you’re paying for the ticket as soon as get it or appeal the decision if you think it wasn’t fair. Delayed payments give the city the right to send your details to collection which will ultimately damage your credit score.
5. Avoid Store Credit Cards
Department stores are notorious for offering credit cards with attractive sign-up discounts. The balance needs to be paid just like the other cards you have. Late payments will accrue interests which can be challenging to pay. As mentioned before, payment history is the most important factor when calculating the credit score. These cards tend to have very high interest. According to a survey done by creditcards.com, store credit cards were found to have an average of 25 percent interest which is almost 9 percent more than normal cards. High interest means it will take you a long time paying off the balance.
6. Request a Credit Limit Increase
You shouldn’t shy away from asking for a credit limit increase. It is one of the unexpected ways to build credit. As we have discussed, credit utilization plays a vital role in determining your credit score. You get a higher score if you lower the utilization. Most credit companies make it easy to ask for a credit limit increase. Some will require that you provide the annual household income.
7. Get a Secured Credit Card
This is one of the easiest ways of building credit if you’re starting from scratch. A secured credit card is usually backed by upfront cash deposits. The amount you deposit is equivalent to your credit limit. It functions just like any other credit card. You’re able to make purchases and ensure that the payment is made on time. The purpose of these cards is to build your credit score as you can’t use them forever. When choosing a secured credit card, go for one with low annual fees.
8. Get a Credit-Builder Loan
The money that you borrow through a credit-builder loan is held by the lender and can only be released when the loan is paid in full. You can get such loans from community banks or credit unions. This could be seen as a last alternative if you can’t borrow from other banks because of your credit history. Make sure you ask the fees and interest rates before you take a credit-builder loan.
It is more than paying the bills on time
Having a good credit score goes beyond paying the bills on time. You need to take care of the basics first before you look for unconventional but effective ways to build credit. By incorporating the mentioned tips, you could significantly improve your credit score. Also you can look at doing debt agreements as a way to deal with outstanding balances as well.