If you’ve ever tried to rent an apartment, you know that you need a credit score to do so. Why? Because the landlord wants to know that you can pay your rent every month and whether you have a history of paying bills on time. Having a credit score is a part of life, like death and taxes. Every adult has one, or should have one. And having a high credit score will make taking out a loan, opening a new credit card, getting a mortgage, or renting the apartment of your dreams much easier. There are a few habits you should develop to have a good credit score. Let’s walk through what those are.
Why is it important to have a good credit score?
Having a good credit score opens up many financial doors for you. You’ll be able to get a lower interest rate on a loan, rent a better apartment, have a credit card with a low interest rate, get a better rate on a mortgage, and so much more. Some companies even check prospective employees’ credit scores before hiring them. Having a good credit score will only help you financially, while having a poor credit score will hurt you financially.
How can you raise your credit score
Decrease your debt utilization
One of the first things you can do is to decrease your debt utilization, or the percentage of available credit you use. To do this, you can spend less money on your credit cards, and more through your debit cards or cash. If you can afford it and can get approved, you can also open another credit card so that you have a bigger credit line and so that you can spread your purchases out over multiple cards. You should also not close unused credit cards, because that will increase your debt utilization.
Pay your bills on time
You should also try to pay off all of your bills on time. Late payments can stay on your credit report for seven years. That may mean setting up autopay or negotiating a lower interest rate. Debt utilization and payment history together make up 70% of your credit score, so it’s best to focus on those two strategies first.
Don’t apply for lots of credit cards all at once
Applying for too many credit cards in a tight time period is also a bad thing for your credit score. When you apply for a new card, you create a hard credit inquiry, which negatively affects your score. These should only stay on your credit report for two years, though. So spread out your applications for new cards.
Open a secured credit card account
If you have the issue of thin credit, meaning you have a small credit file, you should consider beefing up your credit history. For example, you could open a secured credit card, which requires a cash deposit often equal to the credit line. This deposit is used in case you don’t pay your bill. Since not paying your bill would negatively affect your credit score, do not open a secured credit card account if you will have trouble paying off the bill.
If you pursue debt settlement, how will it affect your credit score?
Debt consolidation and debt settlement are both processes for paying off what you owe, but they tackle the problem from different angles. Debt settlement focuses on renegotiating the amount of money owed, while debt consolidation focuses on shifting who the money is owed to. Settlement shrinks the total amount you owe; consolidation combines all of your debts into one lump sum payment.
If you have overdue unsecured debt, which is a loan not tied to a house, car, or other asset, you can likely pursue settlement or consolidation. If the amount you owe is larger than you could possibly ever pay back, settlement may be your best bet.
Be sure to consider the potential risks when refinancing your debt. Your credit score is likely already affected by your payment delinquency, and fixing your debts by settling or consolidating them will further hurt it in the near-term. While terms of your repayment are being discussed, you may be encouraged to stop paying collections agencies and others asking for their money altogether. This could build up late fees and interest on top of what you already owe. Make sure you truly understand your situation and weigh the potential long-term risks before you make a final decision.