Many people tend to ignore their credit score until it’s time to apply for that big loan. This is not ideal. This only means that they are oblivious of the fact that credit scores are accumulated screenshots of your behavior with money over the stretch of a long period of time.
So, how to strengthen your credit score? If you asked most people how to do this, they would likely return a blank stare. Many times, people who have good credit ended up that way via a process. They’ve opened all of the normal accounts and made regular, on-time payments. As a consequence, they ended up with a good credit score with as much luck involved as strategy.
For a person just starting off, or for the person working their way back to having good credit after their credit has been damaged, there is a faster, more systematic way of going about the course of strengthening your credit score on purpose.
How to strengthen your credit score
Start using secured loans:
- Some banks or credit unions offer low risk secured loans. This is a type of loan which has collateral attached to it, and the bank or credit union can collect the collateral if you default on paying the loan. This is what makes it a low risk loan.
A secured credit card is a type of secured loan. The asset which the bank or credit union will require you to attach to the secured credit card to serve as collateral is your savings account or a Certificate of Deposit (CD). You will be restricted from taking money out of the attached CD for personal use for the whole duration of the loan.
If you want to build or establish your credit history and strengthen your credit score, one of best places to start is using secured loans or secured credit cards.
The idea here is simple. Your bank or credit union keeps your money in an account, and then loans you the same amount of money. The amount your credit limit reads must be the same with the amount deposited in your attached CD or a small percentage above your credit limit. As you begin to make payments on the loan, your money will be released back to you until the loan is paid off.
Where this is a huge win:
Banks and credit unions almost never check your credit for these types of loans because there is no risk to them for lending you the money.
Huge win part two:
As you make payments, they are just about always reported to the credit bureaus, which means you start establishing good credit the moment you pay your first installment. Check your credit reports to verify that your bank is reporting your timely payments using your secured credit card so that it can reflect in your credit score.
The third huge win:
You’re less likely to endure the sky-high fees and interest rates that you would with the lenders and credit cards that approve people with little or no credit. Also, if you consistently pay your bills on time, sometimes the bank will reward you by adding to your credit line without requiring you to deposit more money.
Starting where you have your savings or checking account is usually best. You already have an established account history with them and they will almost always allow you to set up payments that come from your account automatically. This article also provides you ways to see an increase in your credit score.
This article also provides you ways to see an increase in your credit score.
Use credit cards with low balances:
Next, move onto credit cards with low balances.
When you pay off the balances on your existing credit cards by transferring those balances to another credit card, it’s called a balance transfer. The amount you transfer must be up to the limit on the new credit card. Transferring credit balances can help you consolidate all your debts onto one card, so that
you don’t have to monitor multiple balances on multiple credit cards with multiple due dates all at the same time.
It may take you some shopping to find the right card at first, and be very mindful of the terms they extend. If a significant monthly or annual fee is offered as part of the terms, continue shopping.
Look for cards with a 0% introductory interest rate, although a very low interest rate (like 2.99%) is also not bad. You certainly don’t want to use a card with interest rates that will cause financial charges to accrue on your balance transfer.
Before you accept a balance transfer offer, check to see the balance transfer fee and make sure there’s an introduction rate on that as well. If you’ve found an offer that’s best for you, you need to inform them of who you’re paying the balance off to and then submit their account numbers.
Try to avoid using these cards unless you have to. But if you do end up using them, be sure to pay them off before the end of the month. Most competitive credit cards won’t charge you interest on your balance unless you haven’t paid it by the end of the month.
Keep in the habit of watching your credit score. As more and more of your “beginner credit cards” and secured loans start reporting on your credit report, your credit score will start to take root and grow stronger.
Once your credit score grows strong enough, you can continue looking around and get better interest rates on your credit cards. Then you can move your balances to the cards with the best deal.
- Do not charge a credit card to its maximum possible balance:
Lastly, be sure to refrain from charging a credit card to its maximum possible balance. It can lower your score in contrast to a card with lots of available limits.
How is this?
Well, remember what we said about credit utilization rate? That is the ratio of your credit card balance (or the amount you owe) to the total credit card limit (or the amount available). We said before that your credit utilization is one of the largest influences on your credit score, and it impacts 30% of your score.
Your credit utilization rate tells how much you are spending without putting back. If your credit utilization rate is high, then your credit balances are high, and the negative impact it will have on your credit score will also be high.
You want to keep your credit utilization as low as possible, and not max out on your credit card just because the money is there. Most credit card ushers charge a certain amount when your expenditures exceed your card’s limit, and the card issuer could boost your interest rates up to “penalty rate”. Penalty rate could be as high as 30%.
So whether you’re reestablishing your credit after a financial crisis, or struggling to establish your credit for the very first time, you can use these simple steps to strengthen your credit score. Also, when seeking help, always remember that you are protected by the Credit Repair Organizations Act.
So If you need more information on how to strengthen your credit score, this topic, below is a free guide that will walk you through the process step by step and will also cover:
- Getting and Understanding your credit reports & scores;
- Real “how-to” for improving your credit (these are the very tactics the best credit repair firms in the country use);
- Powerful action plans.
To Better Credit!