Having a good credit score is about more than bragging rights. Your credit score is a snapshot of you as a person, telling everyone from lenders to potential employers how you behave with money. Therefore, generating and maintaining a good credit score, no matter your past history, is an essential item on everyone’s financial “to do” list.
Good Credit Matters, and It’s About More than Interest Rates
People with low credit scores pay more for the same credit-related services than those with higher scores. And these higher costs are not limited to interest rates alone. Consumers with low credit scores also pay other penalties including creditor fees and higher insurance premiums. Those with higher scores are also often given the benefit of the doubt when it comes to waiving late payment fees and are frequently offered larger, more attractive incentives to purchase or sign up for financial products. Furthermore, even accessing money through loans may be impossible for those with the lowest scores, especially during periods when lending standards are tight.
Controlling your personal finances and attaining financial stability starts with building and maintaining a strong credit score. A bit like losing weight and keeping it off, building and maintaining credit the right way takes time and constant diligence. However, there are simple changes you can make today that will put you on the path to financial health over the long term. So while getting that elusive 750+ score may be months or years off, use these simple strategies for building and maintaining good credit starting now…
1. Check Your Credit Report
The best way to get where you are going is to learn about where you have been. It goes without saying that in order to improve your credit score you need to know your credit score, but there is more to your credit than just three numbers. Start by getting a copy of your credit report from all three credit bureaus – TransUnion, Equifax, and Expirian – and read them. As you go through each report, be on the lookout for anything that doesn’t match across the three bureaus or anything that isn’t accurate, such as:
- Accounts you do not recognize
- Closed accounts still listed as open
- Inaccurate credit limits or amounts owed
- Late payments that were actually on time
If you spot an inaccuracy, you will need to gather evidence to prove that it is false and then present that evidence to each credit bureau along with notification in writing. The bureaus have 45 days to look into the matter further. If they cannot find evidence that contradicts your claim they must take the information off your credit report.
2. Make More Frequent Payments
Many people do not realize that a credit report changes throughout the month according to the cycle of your bills. When requested, it gives a picture of your credit in that exact moment in time only. This means that credit card balances, for example, are displayed as-is on that day, even if you intend to pay them, in full, when due and never pay interest.
Thus, by splitting your payments into two times a month, rather than one, you lower the amount of money that a lender will see on your report at any given time. You don’t even need to pay more on the balance for this to work. That is because lower balances lower your utilization ratio (the comparison of credit available vs. credit used) which increases your score.
3. Become an Authorized User
This is a strategy used by many parents to help their children build their credit scores, but it can be used at any time in your life. An authorized user of a credit card is not the main account holder. However, he or she is given a card and the right to charge with it. As a result, the entire history of the account appears on the authorized user’s credit report. For a responsible credit user, this is a fast and effective way to build fast credit for someone else.
However, there are a few caveats you need to keep in mind when using this method. First, obviously, a irresponsible account holder or an authorized user who charges too much can take the account from good to bad quickly. In addition, certain credit bureaus and card issuers view the authorized user in different ways. Make sure to check the rules for your card before using this strategy.
Sometimes, life happens and you can’t pay your bills as you intended. While those late or non-payments are real and accurate, there are ways to ease the impact of these mistakes on your credit score through negotiation. Especially when hardship such as job loss or illness was involved, credit card companies can and do alter and eliminate amounts owed. One strategy is to write a letter to the creditor explaining your situation and an offer to pay the remaining balance if the creditor reports the account as “paid as agreed.” You can also ask for a “good will adjustment” of your total balance, particularly if you were previously a responsible customer and just fell on hard times. Regardless of what method you choose and agree to, make sure that you have the lender agree to your terms in writing before you pay.
5. Keep it Simple
Finally, but perhaps most importantly, it is important to remember that good credit, like losing weight, is easier than it seems – just like you need to eat less and exercise more, getting and maintaining good credit is more about making common sense lifestyle changes that are easy to maintain. The trick is to remember to KISS, or “keep it simple, stupid” and do the following:
- Pay your bills on time every month
- Keep your balances low
- Pay off the debt you have and not generate any more
- Think and be cautious before applying for any new lines of credit
Commit to making these habits natural and non-negotiable in your life. Though it will take time, point-by-point your credit will improve and you will be on the path to a bright financial future.