Good credit saves you money. A consumer with a FICO score of 700 saves an average of $648 in interest on their credit cards, $2,340 on their mortgage, and $1,392 on their car loan every year, when compared with consumers whose credit score is below 620 (according to a study by Card Hub).
Could your credit use a boost? Here are eight ways to improve your score.
1. Knowledge is power. The first step towards good credit is understanding the basics about credit reporting agencies and credit scores. Brush up on your credit score knowledge.
2. Never miss a payment. For most people, the bulk of their credit score is based on their payment history, so even if you can only make a minimum payment, make sure you are always making payments on time. If you have any past due accounts, pay off the most past-due accounts first, and gradually catch up on all your payments.
3. Try not to use more than 30-40% of your available credit. While it is important to regularly use your available credit, you should avoid using it all.
4. Ask for a credit increase. This boosts your debt-to-credit ratio without you even having to pay down any outstanding debt.
5. Transfer debt to a personal loan. The interest rate on credit card debt is often higher than it would be on a personal loan. Consolidating that high-interest debt into a single personal loan will boost your credit score and save you money.
6. Don’t close accounts. This may seem counterintuitive, but canceling credit cards has a negative impact on your debt-to-credit ratio as well as your credit history — which are two of the five categories used to calculate your credit score.
7. Get credit to improve credit. If your credit is too low to qualify for a credit card or loan, sign up for a secured credit card. A secured credit card is similar to a gift card, you put down a “deposit” and that amount serves as your credit limit. Make sure that the secured credit card you use reports to all of the credit bureaus to maximize its positive impact on your score.
8. Set up automatic payments. We are all busy people, so it is easy to forget to make a payment. We are big proponents of automating things like this to help you spend your time doing more productive things. Then all you have to remember is to update your credit cards when they expire or get replaced!