A credit score is the crux of your financial life, and if it’s not up to par, it can be a scarlet letter to lenders. When you apply for a mortgage or a car loan, your lender determines how much of a risk you are — and how much interest to charge you — based partly on your credit history and score. If you have an excellent history, you’ll get approved much more easily than someone whose credit is so-so. With the lower interest rate that can come with strong credit, you may also pay less — often hundreds of dollars less each month, in the case of a home mortgage.
Before jumping into a major purchase, then, it’s important to have a healthy credit score. Here are five simple steps to give your credit a boost.
- Pay on time. Whether utilities, a car payment or a credit card, make sure you’re paying your bills on time, every time. Payment history accounts for 35% of a credit score, so this can be a surefire way of boosting your credit.
- Charge Less. Try not to use more than 30% of your borrowing limit on any credit cards. Paying your bill down multiple times each payment cycle can help keep you below that amount. If you really want to boost the score, try and keep credit utilization under 10%.
- Do regular check-ups. Obtain a copy of your credit report through AnnualCreditReport.com. Each of the three major report providers is legally bound to give you one free copy per year, so plan on checking one of them every four months. If you spot any errors, make sure to dispute them, because they can drive your credit score down.
- Be careful about opening retail accounts. Credit cards can be an ally in building credit as long as you stay well below the spending limit and pay the bill frequently. Avoid the temptation to open a retail card just to get a percentage off of a purchase. Applying for too many new lines of credit in quick succession can hurt your score, too, particularly if one or more are denied. Instead, consider talking with advisors at a lender such as BankFive to obtain a credit card.
- Become an authorized user. If you can’t get a card on your own, consider asking a family member or significant other if you can become an authorized user on their account. You should ask someone who’s trustworthy and routinely pays their bills on time, because when they do that, it will strengthen your credit score as well as theirs. At the same time, any future late payments the primary account holder has will be reflected on your credit score, too. And avoid running up the tab: If the main account holder’s credit use tops 30%, that will show up on your credit report.
Delinquencies and collections remain on your record for seven years, but good behavior in the last two years — especially in the most recent months — can help to boost your credit. Follow the steps above and as your credit score climbs, you should find it easier to get approved for loans at lower interest rates. That will make it less painful to make the payment each month.
Cait Klein, NerdWallet