Looking to buy a home or apply for a rewards credit card? Your creditworthiness may make all the difference. In addition to your income and current debts, lenders and credit card companies care about your credit history and score. Your credit report provides valuable information about you, including whether you make timely payments and how much of your available credit you use. Good credit can mean lenders are more likely to offer you favorable terms on credit cards, personal loans, a mortgage, and other products. You can improve your credit history with these tips:
1. Make Timely Payments
Build a good payment history by paying your credit card bills or loan payments on time and in full on or before the due date. Payment history accounts for a sizeable portion of your credit score, so staying on top of your payments can help you improve your credit. Consider automating your payments if you haven’t already, or use reminders to ensure you never miss a due date.
2. Try a Secured Credit Card
If you’re just starting your financial journey and don’t have credit yet, it may be harder to get approved for a traditional credit card or loan. Luckily, you can get a secured credit card to help build a payment history. These types of cards require cardholders to provide a security deposit to act as collateral. Their credit limit is equal to the value of the deposit. Though you’ll lose access to your cash for a little while, making consistent payments on your secured card helps you build your credit history so you can qualify for unsecured credit cards and loans with better terms in the future.
3. Maintain a Lower Credit Utilization Ratio
Your credit utilization rate refers to how much of your available credit you’re using compared to your total credit limit. Since credit utilization makes up 30% of your credit score, a lower rate can positively impact your credit history. Additionally, lenders and credit card companies often perceive lower credit utilization as an indication of effective debt management, suggesting that you’re less of a financial risk.
Many personal finance experts recommend maintaining a credit utilization rate of lower than 30%. You can easily find your credit utilization ratio by dividing the sum of the balances you carry on your credit cards by the sum of your credit limits. Multiply the result by 100 for a percentage expression of your credit use. Then, aim to keep this rate at a small percentage of your credit limit.
4. Raise Your Credit Limit
A low credit limit may drive up your credit utilization ratio. Even restricting credit card use to essential purchases won’t help with your utilization rate if your credit limit is low to begin with. Card issuers may raise your limit if your income has increased since you first got the card or if you’ve paid down some debt. You can also request a higher limit, but keep in mind that this will result in a hard inquiry, which can slightly lower your score for a short period of time.
It’s important to remember that this tip only works if you raise your credit limit while keeping your spending as is. If your credit limit rises and your balance does not, you’ll see an improvement in your credit history.
5. Check Your Credit Report
Everyone with a valid credit history can check their credit report for free at least once a year with the major credit bureaus. Checking your report helps you keep track of your credit accounts, spot any fraudulent activity, and find mistakes that may be affecting your score. Check that your accounts are up to date on your credit report and dispute any errors you find. Ensure that negative information, such as a late payment, is removed from your profile after the required waiting period of seven years.
The Bottom Line
Growing your credit history can be a balancing act that requires strategic planning and disciplined financial habits. These simple tips can go a long way toward helping you grow your credit history and improve your credit score over time. By building a positive credit history, you can pave the way for favorable financial opportunities in the future, such as loan approvals and competitive interest rates.