Is a low credit score holding you back from getting approved for a loan? Do you dream of becoming a homeowner, but need to improve your Credit score?
We’ve got you covered! Follow along for 5 ways you can increase your chances of approval once and for all.
Low Utilization Makes a High Credit Score
Your credit card utilization is a measurement of how much of your credit card balances you’ve spent versus your overall credit limit. This counts for all your cards individually and combined.
If you have a credit card where you’ve only utilized 10% of your balance and another where you’ve utilized 70% the 70% utilization will still have a negative impact. Opening a new credit account to offset the high utilization on another card isn’t a smart move either.
In the meantime, other tips to keep your utilization down include:
- Making small payments throughout the month
- Spread charges across multiple credit card accounts.
- Ask for a limit increase don’t overspend to match your new credit limit
It’s important to remember to keep your balance at 30% of your credit limit or less. If you need to make a large payment using a credit card, try to pay the purchase off as soon as possible.
Pay Off Old Collection Accounts
Resolving accounts that had been transferred to a collection’s agency will drastically increase your credit score. When you check your credit report, you will have a list of these accounts that are in bad standing.
Since the agency’s contact information is typically listed on the same page, you shouldn’t have too much trouble finding someone to assist you. If the balance that needs to be collected is more than you can afford during the time of the call, the representative you speak with may ask if you’re interested in settling the account.
When you’re settling an account, you are usually being asked to pay the principal balance which is the amount that was owed before the account became past due. This means your late fees and interest have been waived.
There’ll be a due date for the settlement amount (usually 90 days out.) And most collections agencies will allow you to divide those payments into manageable installments as long as the last one is by the agreed upon date.
Be mindful that settled accounts may still show on your credit score as not having been paid in full, even after your last payment. Before agreeing to a creditor’s settlement terms, ask if it will show as paid in full on your credit report.
Depending on their answer, you might be better off making payment arrangements for the full balance instead of settling. Most agencies will work with you to set up payments according to your pay schedule.
Build Credit with a Secured Card
The beautiful thing about secured credit cards is they are built to help improve your credit score. So, if you’re young and haven’t established credit yet or you’ve made mistakes that caused a low score, a secured card can help.
The process of signing up for a secured credit card is fairly similar to signing up for a normal card. You will still need to provide information like your social security card, address, and salary.
Your credit limit will be determined by the deposit amount you choose. Different credit card companies have their own rules and qualifications, so make sure you do your research on the minimum balance requirements and APR.
If you’d like to start off with a $200 limit, for example, that amount will be deducted from your bank account and you can swipe your card up to that amount. Although, you need to be mindful of the utilization.
When you’re searching for a secured credit card, find one that will reward good behavior. For example, with Capital One’s Platinum card, you will receive an automatic balance increase after having made 5 consecutive payments on time.
Your payments and utilization will be reported to all the major credit reporting agencies. If you manage the card correctly, you’ll see your Credit score increase a little every month.
Don’t Close Old Accounts
There isn’t much you can do about your credit age, but this factor has a huge impact on your credit score. A credit age of 5 years or more is usually considered good.
This means you’ve had open credit accounts and have been making payments for at least 5 years. If your credit age is less, you will have to be patient while it increases.
While you wait, don’t rush to open several lines of credit. It has a negative impact on your score when there are a lot of requests in a short period.
Also, don’t close existing lines of credit. This can be an old credit card you paid in full and no longer use.
You’re better off storing the card in a safe place and forgetting about it for a couple of reasons. Let’s say that credit card has a R1,000 limit. Since you aren’t using it, it has a R0 balance being carried from month to month. That 0% utilization is adding points to your credit score.
If you’re using a different card and keeping it in good standing, that unused card will still help when you apply for a loan or another line of credit. Also, keep in mind that even an account closed while it’s in good standing will sit on your credit report for up to 10 years.
Protect Your Identity
With the majority of us paying bills and making purchases online, the risks for identity and credit theft are higher than ever. Protect yourself and your credit score by monitoring and then reporting suspicious transactions and accounts.
This includes disputing accounts on your credit report that shouldn’t be there. Consider signing up for an identity theft protection service. Many banks offer them to account holders and they’re inexpensive. If your name is ever used, it can take years to repair your credit.
Without a great Credit score, you will run into roadblocks when it comes to purchasing a home, a car, or even starting a business. Improving this number isn’t just about become debt free, it’s about creating a more satisfying lifestyle.
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