If you’ve struggled with your credit in the past and want to find a way to improve your score, there are some practical steps you can take to help you re-establish your credit score:
Always Pay Your Bills on Time
Whether it’s for your credit card or your phone bill, do your absolute best to make sure you get your payment in by the due date. While credit bureaus don’t typically look at the payment record of your utility bills, there are some mobile phone companies that will report your late payments to the agencies in charge of creating the reports (which will negatively affect your score).
Pay at least the Minimum Amount on your Monthly Statement
If you can, absolutely pay the full amount listed on each bill. If not, make sure you pay the minimum required amount. Obviously, it’s not ideal to just be paying the minimum amount each month (not ideal for you, anyway; banks revel in all the extra money they reap in added interest) but so long as you keep those payments consistent, it won’t reflect poorly on your credit report.
Try to pay off any remaining debt as quickly as possible. For different debt repayment options, check out this post on the snowball versus the avalanche method.
Never Go Over 75% of Your Limit
It’s incredibly important not to go over the credit limit on your card. The absolute highest you should go is 75% (though the ideal recommended percentage is 50% or below). The higher your balance is, the more interest you accrue if you can’t pay it off on time and the more reliant on credit you look to your bank (which is not a good thing).
Don’t Make Too Many Credit Applications
If too many potential lenders look into your credit history (resulting in something known as a ‘hard inquiry’) in too short a period of time, it can have a negative effect on your score. There are exceptions to this rule, of course – you can find out more about them here. Looking into your own credit, however, will not have any negative effects (this is called a ‘soft inquiry’)
Build Healthy Credit if You Previously Had None
In some cases, your low credit score may not be due to previous money mismanagement but rather a total lack of credit. In this case the goal is not to re-establish your credit score but rather to establish it period. If you’ve never had to use credit, banks have no proof of your spending and repayment habits and don’t know if you can be trusted to pay them back. The best remedy for this is to open up a credit card account and start building a credit history by making small purchases and paying them back immediately. If you don’t qualify for a traditional credit card, look into a secured card instead. They function exactly the same as standard credit cards only you have to put down a small deposit as collateral before the bank gives you access to funds.
Another option is applying for a department store or gas station credit card. These are not intended for everyday purchases as the interest rates are often extremely high, but they’re fantastic to help you build your credit score back up again by making small purchases and immediately paying them off again.
Catch Up on Late or Outstanding Payments
Catching up on any late or outstanding payments is the best thing you can do to re-establish your credit score. Whether you’re two weeks or two months behind, hurry up and pay up at least the required minimum payments. In the case that you’re able to completely pay off a card, don’t close the account. It actually reflects poorly on your score to close a credit card than to just let it sit idle in your wallet or in a drawer in your house. As long as you make at least one purchase a year (no matter how small) and pay it off, the card stays active and will continue to be counted positively towards your credit score.
Call Your Lender and Come Up with a Compromise
If you still have outstanding debt you don’t know how to deal with (or can’t pay off), call the lender and see if you can come up with a compromise. By being upfront and contacting them before there’s a problem (or before they contact you), they’re far more likely to work with you to come up with a solution that’s agreeable for both parties.
There are a number of helpful techniques you can use to re-establish your credit. If you’d like some guidance, feel free to fill out an online application on our website here!