A credit report is a bit like a report card, but for consumers instead of students. If this is true, then a credit score is like a G.P.A. And if a credit score is like a G.P.A., then one in the 700s is like having a 3.5 or higher; it puts you ahead of the pack and makes it possible to benefit from opportunities which are inaccessible to those who’ve yet to reach that same level.
If your credit score is below 700, don’t feel too bad. Millions of people live with low credit scores. However, that doesn’t mean you shouldn’t aspire to join the “700 Club.” From there, you can continue to watch your credit score soar to as high as 850!
So how can it be done? Assuming you currently have a credit score in the 500-650 range, the following tips can be used to increase that number over time and reap the rewards as a result:
Borrow money and use credit
Even the most financially responsible individual will have a low credit score if they aren’t actively borrowing money and using credit. It’s by doing these things that a person proves they’re able to effectively manage debt. This, in turn, helps to determine their credit score. Start by applying for a small bad credit loan through a lender who will report to the major credit agencies. Follow up by applying for a credit card with a modest credit limit.
Pay on time
It’s one thing to be approved for a loan or line of credit. The key is to pay the money back. What’s more, you have to pay on or before the due date. Failure to do so will result in late payments being reported to the agencies which determine your credit score. A history of making late payments will result in a lowering of your credit score, so it’s important to never pay late. In the event you forget a payment or find yourself unable to make one on time, contact the lender or credit card company immediately. This might result in not having it reported, which will help protect your credit score.
Limit utilization
If all goes according to plan, your access to available credit will increase. In other words, a line of credit originally capped at $1000 will expand to $5,000 or more. At this point, you’ll want to limit your credit utilization. For example, if you have $30,000 in available credit when all accounts are added up, you’ll want to limit your utilization to less than $10,000. Keeping your credit utilization ratio to below 30% is an indicator of your ability to responsibly take advantage of available credit without getting in over your head.
Monitor credit
As the saying goes, “knowledge is power.” An earnest effort to improve your credit score is made harder if you’re not monitoring your credit on a regular basis. This enables you to more swiftly address problems that threaten your credit history. The good thing is you don’t need to pay for access to your credit report. Everyone is legally entitled to seeing their credit report for free once a year, so take full advantage. Furthermore, many credit card companies now let their members have access to their credit scores on a daily basis.
Live within your means with room to spare
If you are truly dedicated to raising your credit score, you need to prevent your lifestyle from sabotaging your efforts. Those who choose to live a life where there is often little to no money left over once the bills are paid are putting themselves at risk of encountering a situation where they need to borrow money or use credit to pay for an emergency expense or making a major purchase. This sort of situation often leads to debt which is difficult to manage in a responsible way. Avoid this by living within your means with room to spare; let’s say your income enables you to afford to pay $800 in rent per month. Rather than look for an apartment or condominium priced that high, look for one offered for $650 instead. So on and so forth. It gives you more wriggle room, which enables you to use credit responsibly.
A very good credit score – one which is over 700 and approaching or surpassing 800 – is an indicator of being in the upper percentile of financially responsible consumers. But just like getting good grades, attaining that qualification doesn’t happen overnight. It requires hard work, learning lessons, and the willingness to make sacrifices. Do these things, and you’ll be well on your way to the “700 Club” and beyond.
