Having a good credit score can help you land lower interest rates and qualify you for home loans, auto loans and credit cards. If you have a bad credit history, it might hold you back from being able to accomplish your financial goals. However, there are steps you can take to improve your credit history and meet your goals.
Credit utilization, or the percentage of your available credit that you use, is one of the biggest factors in determining your credit score. If you use more than 50 percent of your available credit, odds are good that it is having a negative impact on your credit score. There are a few ways to combat this.
If you have a credit card, you can call and ask your provider to increase your limit. By increasing this, you increase the amount of credit available to you and, thus, improve your credit-utilization ratio. You can also increase the credit available to you by opening another credit card and using it sparingly. The best way to improve your credit utilization ratio is to pay down your credit card balance to less than 30 percent of available credit.
Another key factor that contributes to your credit score is the age of your credit. If you currently have multiple credit card accounts and are looking to close one, be sure to close your newer, less established accounts. This will keep the age of your credit high, which will help to keep your credit score up.
Missed payments are one of the easiest and most common ways to damage your credit score. Make sure that you are paying your monthly bills on time to avoid a negative report to the credit bureaus. If you cannot afford to make your monthly payments, you will need to make budget adjustments in the long term to keep your debt manageable. In the short term, carefully prioritize your payments. Missing a mortgage or credit-card payment will likely mean a negative report sent to the credit bureaus, while missing a utility or cellphone bill may not.
Your credit score will never improve overnight, so—if you have a bad credit history—you should start working to fix it as quickly as possible. Luckily, with some smart financial planning, you can fix your credit by following the above tips.