11 Ways To Boost Your Credit Score
January 27, 2014One of two things hold you back from better credit — inaction or the wrong action. So it’s either time to start doing or to start doing it right. Here are 11 ways to do that:
1) Make on-time payments.
This is number one on the list for a reason. Paying your credit accounts on time should be your number one priority, be it credit cards, auto loans, students loans, mortgages, or any other type of credit line. Even just one late payment can make a big dent in a credit score.
2) Deal with old debt (not to be confused with “pay old debt”).
If you have old debt that has been sold from original creditors to debt collectors, there’s a chance you could have the debt wiped clean. The process is called debt validation, in which you request that the collector prove they can legally collect on the loan. Often times, they do not have the documentation to be able to do so.
You should also check the statute of limitations on debt in your state, as there comes a time when you are no longer legally obligated to pay on the debt. If it hasn’t reached its statute of limitations already, it may very soon, in which case you may be able to wait it out. Only after you have exhausted these options should you enter into negotiations with collectors so as to get the debt paid off and wiped clean.
3) Keep your credit card accounts active.
While having an unused credit card won’t hurt your credit score, it’s not helping it either. If you’re not using your credit card, you’re not proving you know how to manage credit effectively. All you’re proving is that you know how to avoid managing credit at all.
4) Pay off your credit card balances every month.
Whatever you charge to your credit cards, be sure it never exceeds the cash you’ll have on hand to pay it back within 30 days. This not only helps your credit score, but also allows you to avoid interest fees.
5) Utilize no more than 30 percent of your credit at a time.
Your credit utilization ratio accounts for a big chunk of your credit score. The ideal ratio is 10 to 30 percent. So, for example, if your credit card limit is $1000, then you never want to carry a balance of more than $300 at a time. If you’re way over this right now, stop using your credit cards and start paying down your debt, which means exceeding (doubling or tripling, if possible) your minimum monthly payments.
6) Get a secured credit card.
If you do not have good enough credit to qualify for an unsecured card, apply for one that you secure with a cash deposit. Just be sure to find one that reports to the credit bureaus. It’s just your own money that you’re spending, but the card serves the same purpose as credit, at least to your credit score.
7) Become an authorized user on someone else’s credit card.
If you have a close family member or friend who knows how committed you are to building your credit, ask them for help. If they call their credit card company and request for you to become an authorized user on the account, you get credit for any and all activity on the card. (Note, all of this is not to say you are asking them to let you use the card. On the contrary, you need not use it at all. You can even insist that, after receiving the card in the mail, you will hand it over to the card owner, just to be sure you’re both on the same page about the purpose of the arrangement.)
8) Take out an installment agreement loan.
There are two types of credit, both of which you want to see reflected in your credit reports. Credit cards represent revolving credit, as they need not be paid off every month (though that should certainly be the goal). Auto loans and other installment agreements represent non-revolving credit, in that there are a pre-set number of payments to pay off the loan by a certain date. You can try your bank, of course, but if your credit is less than stellar, you may have more luck with a credit union.
9) Ask someone to co-sign on a loan with you.
If you cannot qualify for an installment loan on your own, consider asking someone to co-sign on it with you. Of course, this option takes your relationship with family and friends to the next level. Unlike being an authorized user on a credit card that you need not use at all, getting a co-signer on a loan carries a greater degree of trust and accountability since you will be the one responsible for making the monthly payments. But the rewards can be huge as you can qualify for a loan that you would never be able to on your own.
10) Take out a loan through a peer-to-peer lending site.
If you do not qualify for a loan through a bank or credit union and you don’t have a co-signer, consider a more non-traditional route. Peer-to-peer lending sites — like Prosper and Lending Club — approve loans for people who cannot get credit through conventional means.
11) Make on-time rental payments.
RentBureau is a credit reporting agency that maintains a database of rent payment histories. RentBureau was acquired by Experian — one of the three major credit bureaus — which now incorporates RentBureau activity into the Experian credit score. If you rent, ask your landlord if they are a member of RentBureau. If not, suggest they join as it also gives them access to a database of potential renters and, more importantly, their rental payment histories.
Any other ideas for boosting credit that you’d add to the list?
This entry is a guest post by Meredith Simonds, the personal finance blogger for Credit Info Center. Check them out on Facebook. You can follow her on Twitter @creditinfocentr and on Google+