Excellent credit is something to strive for, but for most of us, we’re just not there yet. In fact, according to ValuePenguin, the average credit score is less than 700, which is considered only an average/fair score in the eyes of many lenders.
Your credit score (also known as a FICO or a Vantage score) plays a critical role in whether or not you’re approved for credit and take into consideration your payment history, length of credit history, credit utilization, new credit accounts and credit mix. Ultimately, good credit makes your life easier – you can get a loan easier and you may qualify for better interest rates.
Here are six tips to help improve your credit history:
Monitor your credit closely.
Consumer credit monitoring services can track your score, as well as personal finance apps like Prosper Daily. The free app is designed with a full suite of tools that allows you to monitor your credit score monthly, set-up fraud alerts, flag wrongful charges and track your spending all in one place.
Pay on time.
A great way to keep a healthy credit score is to make sure you pay your bills on time. Payment history typically accounts for 35% of your credit score. To ensure that you pay on time consider setting up payment reminders. Some banks offer payment reminders on their websites that can send you an email or text message reminding you when a payment is due. You can also consider enrolling in automatic payments.
Increase your credit limits.
Raising your credit score means lowering the proportion of the debt you owe to the credit you have. Experts recommend that you aim for a percentage of 30% or less.
Pay down your revolving debts.
This one might seem obvious—the less debt you have, the better your score. Focus on paying down your credit cards and items that you purchased through a financing plan, like a big screen TV or computer.
Here’s a surprising thing about credit cards: Even if you pay your balances off every month, using them could still be hurting your credit score. That’s because credit bureaus look at your statements’ monthly closing balances, not whether you’ve carried a balance. Using your credit card less and lowering your statement balances is an easy way to increase your credit score, even if you already have good credit.
Consolidate your debt.
Debt consolidation has two important goals, and they both could be good news for your credit score: 1) increasing the average age of your revolving lines of credit without reducing your total credit limit, and 2) lowering the interest you’ll pay over the lifetime of your current debts. Consolidating debt can also help you to pay off debts more quickly.
If you have several credit cards from a single issuer, ask to consolidate all your credit cards onto the oldest card. If you qualify, consolidating credit card debt via a personal loan, such as through Prosper can help you to save even more because rates can be lower than a credit card. Remember, the idea is to stop using your credit cards, not to close them.