Your credit score plays an important role in your life that can help put you on the right path towards financial success, or veer you off course. It can affect everything from whether or not you get approved for an apartment to getting a low interest rate on a car loan. If you have a poor credit score, you can end up paying hundreds or even thousands more in interest over time.
Fortunately, there are a variety of easy steps you can take to start building good credit. Here are five ways you can improve your credit score starting today.
- Pay bills on time
One of the biggest things that affects your score is a record of timely payments. When you are juggling bills and expenses, it can be easy to lose track and end up missing one, which can negatively impact your credit score.
To avoid missing payments, set up automatic payments for your recurring bills, like rent, electricity and cable. For other bills that do not occur monthly, such as car insurance, put reminders on your calendar to remind you to pay before the bill is due.
- Use less than 30% of your available credit
Another factor credit companies use to determine your score is your credit utilization ratio. This is the amount of credit you use compared to the amount you have available. For example, let’s say you have a credit card with a limit of $10,000, and you have a balance of $3,000. That means your credit utilization is at 30%.
Use less than 30% of your available credit to keep your score high. If you rack up too much of a balance relative to your limit, your score will go down.
- Monitor your credit
There are a variety of services that give you a free credit report, so there’s no excuse to not know your credit score and monitor it. Regularly review your credit report for any errors, such as unauthorized accounts or credit cards that do not belong to you. Erroneous charges can end up bringing down your credit score.
You can sign up at creditkarma.com to get free access to your credit scores and reports, with weekly updates.
- Ask for a credit increase
Because credit utilization plays a big role in your credit score, you can increase your score quickly by asking for a credit line increase. If you are in good standing with your credit card company, meaning you have not missed payments, you can call and ask them to raise your credit limit. With a larger amount of credit available, your score will go up.
If you do increase your credit limit, it can be tempting to spend a little extra, now that you have more credit available. Don’t fall into that trap! Remember to use 30% or less of your available credit to keep your credit score high.
- Consolidate credit card debt
If you have high-interest credit card debt, consider consolidating it with a personal loan. 74%1 of Lending Club customers reported an increase in their FICO scores within three months of taking out a personal loan for debt consolidation, with an average increase of 19 points. Credit cards are a form of revolving debt, while personal loans are installment debt. Having a variety of different types of debt on your credit report can help boost your score.
By consolidating, you can also pay off your debt faster while saving money. Borrowers who used a personal loan through Lending Club to consolidate debt or pay off high-interest credit cards reported that their new interest rate was an average of 30%2 lower than what they were paying previously on their outstanding debt or credit cards. Over the length of your repayment term, that means you may save hundreds of dollars.
Building your credit score
Building your credit score can take time, but if you consistently apply these five tips, you can improve your score and take control of your finances.
If you have decided that a personal loan for debt consolidation is right for you, check your rate today with no impact to your credit score!