If you are like me, and have a bad credit score, you may be asking yourself, how can I improve my credit score. You are not alone, there are millions of people out there with bad credit scores for whatever reason, may it be you didn’t pay a credit card, like myself, or you defaulted on a loan, whatever the reason, this post is going to cover how to improve your credit score.
Improving your credit score won’t happen overnight, it can take a few years to do, I have been working on improving my credit score for the past 6 months, and it has gone up a few points, but there are some steps right now that you can take to get started. I have already taken these steps, and they seem to be working for me.
Lets get right into it, and talk about how to improve your credit score, for free!
Keep an Eye on Credit Card Balances
One major factor in your credit score is how much money you have available on your credit card versus how much you are actually using. Ideally, the less you have on your credit card, the better.
The optimum: 30% or lower of your total available balance.
In order to boost your score, you should first try and pay off your credit card in full using the snowball effect, then use the 50/30/20 Rule to work out how much money you have available each month for personal spending.
After you have done this, you should only spend on your credit card what you have available in cash, and pay the balance off in full at the end of each month to avoid interest, late fees and also prove to the bank that you are capable of paying off debt. I usually pay off the balance in full 7 days before the payment is due. This is because some issuers use the balance on your statement as the one which is reported to the credit score bureau.
If you have multiple credit card balances, you may want to consolidate them with a personal loan, then use the snowball effect method to pay off that loan.
Remove Credit Card Balances
A great way to boost your credit score is to remove what I would call, random balances. Say you have 4 credit cards, with a balance of £40, £90, £20 and £210. You should pay off all of those balances as soon as you can, and use just one card, preferably the one with the lowest interest rate.
The reason this works is because one of the items that effects your credit score is the number of cards which have balances on them.
Pick one card, and use it each month, only spend what you have in cash, and pay it off in full 7 days before the balance is due, this way, you will not over spend.
Pay Bills on Time
When talking about how to improve your credit score, this is a no brainer. Pay those bills on time. Things like your mobile phone bill count towards your credit score as normally the phone company takes out a loan on your behalf to pay for the phone, so paying your bill on time does count towards your credit score, as essentially, it is a loan you are paying off.
Even your internet bill, tax bill, or any other bill can potentially harm your credit score indirectly. Say you don’t pay your internet bill, the ISP may send a debt collection company after you to collect any unpaid balances, this debt collection agency could very well list the item on your credit report.
Use one Credit Card
I briefly covered this above. You should pick one credit card with a good interest rate, and use it each month, making sure to pay off the balance in full 7 days before the balance is due. Remember, don’t spend anymore than 30% of your balance on the credit card, as this can have a negative effect on your overall credit score.
Leave Old Debt on Your Credit Report
Many people try to remove old debt from their credit score after paying off a loan or whatever the debt was. The only debt that your do not want on your credit report, is bad debt. This usually stays on your file for 7 years, I am still a bit away from having that credit card default removed…
Good debt on your credit report shows future lenders that you are capable of managing and paying off debt on time. The longer your credit history, the better it is for your score.
Hopefully, this article on how to improve your credit score will have helped you out a little, and you can get on your way to a brighter financial future.