Your credit health plays a major role in many areas of your life. It can affect your ability to get a mortgage or a car or student loan. If your credit score is less than ideal because of a few past mistakes, a few tips can help you get back on track.
Increase Your Credit Limit
Several factors contribute to a good credit score. One is your credit utilization ratio. Credit utilization is the percentage of your total available credit that you’ve used. If you have a credit limit of $5,000 and you carry a balance of $3,000, your credit utilization rate is 60 percent. You should aim for a utilization rate lower than that—generally, the lower, the better.
Requesting a credit limit increase from your card issuer is one way to help improve your credit health. The flip side is that the card issuer might perform a credit check, which appears as a hard inquiry on a credit report. This can drop your score a few points in the short term.
Pay Down Debt Faster
Paying down your existing debt quickly is a good way to attain a higher credit score over time. Make a plan by starting a budget. Figure out how much your fixed expenses are each month. Then look at your variable expenses and scale them back so more of your disposable income can go toward debt payments. As you eliminate more debt, you’ll lower your credit utilization ratio.
Use a Balance-Transfer Credit Card
If you have cards with high interest rates, you’re probably struggling with finance charges each month. This can make it difficult to pay down balances. One option would be to apply for a balance-transfer credit card. Many companies offer 0 percent APR (annual percentage rate) for the first 12 to 18 months. It’s important to use these cards wisely and not as a crutch. Plan how much you need to pay each month during your introductory, no-interest period to pay off the debt in full.
Monitor Your Credit Report
You’re entitled to a free credit report every 12 months. Always take advantage of this because reviewing your report can help you spot possible inaccuracies and even signs of identity theft. Check to make sure your report doesn’t show any credit accounts that aren’t actually yours and that balances are correct. Your credit report will also tell you if you’ve been dinged for any late payments. The more you review your credit report, the better you’ll understand how it works and increase your overall financial savvy.