There are simple ways to improve your credit score that do not involve third parties or outrageous fees. You can do it on your own with proper credit card management. The tips provided might surprise you. Many people assume closing credit cards is the best way to improve credit. In fact, it is the exact opposite. Closing your credit card accounts can harm your score. These tips when used properly can help increase your score in a short amount of time.
Keep Your Accounts Open
First, we will discuss the importance of keeping your accounts open. Outside of the amount of debt outstanding and the timeliness of your payments is the age of your accounts. The longer your accounts stay open, the more they help your credit score. If you close even one or two credit cards, it can drastically affect your score. If the remaining accounts in your credit history are fairly new, your credit score will drop. Keeping the accounts open without using them is a better option than closing them haphazardly.
Pay Your Bills on Time
This probably goes without saying, but you must pay your credit card bills on time. Payment history comprises a large portion of your score. At 35% of your score, you can do some serious damage with even one late payment. If you have a history of late payments, you are not out of luck. Starting right now, make your payments by their due date. Even a few timely payments can start to have a positive impact on your credit score.
Only Charge What you can Afford
It is tempting to charge whatever you want because you know you only need to pay the minimum payment each month. However, this hurts your credit score. Rather than using your credit card like a loan, treat it as if the money comes right out of your checking or savings account. Each month, pay your balances off right away. This requires some forethought before you charge something. Stop and think if you can afford it. Would you pay cash for it right now? If not, do not buy it. Instead, wait until you know you can go home and pay the credit card right away.
Do not be Afraid to use Your Credit Cards
Many people are afraid to use their credit cards because they want to improve their credit score. However, not using them can be worse than overusing them. Showing that you can use your credit responsibly is the point of a credit score. Without any credit history to look at, credit bureaus have nothing to score. This brings your score down lower than you probably deserve. Using it responsibly, on the other hand, helps your score increase. Even if you have a small balance, your score will benefit more than it would if you never used it.
Avoid Transferring Credit
Transferring credit from a high-interest credit card to a low-interest card seems like a good idea. You save money on interest and pay down the balances faster. This may help your finances; however, it does not improve a credit score. Here is an example:
You have two high-interest credit cards, both with high balances. You apply for a 0% interest credit card and get approved. You move the balances from both high-interest cards to the new card. You then close the two accounts so you do not use the credit any more. You did nothing to improve a credit score here. You simply moved credit around. In fact, you decreased the average age of your accounts by closing the two accounts. This harms your credit score.
Instead, you could pay the balances of the two cards down. If you need help and want the lower interest rate, do not close the two accounts. Leave them open, but untouched. Put the credit cards away so you are not tempted to use them. In the meantime, focus on paying the balance of the new credit card down. At the very least, decrease the balance as much as possible before the 0% interest rate expires.
Watch Your Utilization Rate
Another key factor in your credit score is the utilization rate. This means the balance of your card compared to the available credit. The higher the credit card balance, the lower your score. Creditors like to see no more than 20% of your balance outstanding at one time. This goes back to the theory of paying your balances off right away. Sometimes this is not possible, though. At the very least, avoid charging more than 20% at one time and then work hard to pay it off before using the card again.
Properly managing your credit cards can improve a credit score in a short amount of time. Stay diligent in your efforts and do not charge unless it is necessary. If you need to charge something, make sure you can afford to pay it off right away. At the very least, keep your balances low and always make your payments on time. Eventually, your efforts will pay off and your score will improve, helping you to qualify for other types of loans in the future.