Cultivating Credit: 5 Tips to Improve Your Credit Score

Whether you’re struggling to recover from bad debts or simply seek a better financial future, improving your credit score is the surest path to success. The better your score, the more likely you are to get a loan and the lower your interest rates will be, making it easier to start a business, buy a house or otherwise succeed financially. To soup up your credit score, try:

Positive Debt Preservation

If you’ve recently recovered from a troubled financial history, you may be tempted to purge your records as soon as possible. Fight that temptation. Although you should erase the history of late payments and other negative records, don’t throw the good out with the bad. There are undoubtedly some debts on your report that you paid off on time. Keep those accounts open as long as possible. Having a record of good debt payments will prove that you can handle future debt well, making creditors more willing to lend to you.

Error Elimination

Credit bureaus are hardly infallible. Roughly one out of every 20 consumers has significant errors in his or her credit report, which can include information from others’ accounts, records classifying paid debts as unpaid, or records listing debts paid on time as late. Unless you point out these errors, they will continue to sink your credit score. The only response is to be proactive. Order reports from all three credit rating agencies each year and look through them thoroughly for incorrect information. If you find errors, file a dispute with the relevant credit bureau as soon as possible.

Bimonthly Billing

One of the main factors that credit bureaus use to calculate your credit score is your credit utilization ratio, or the percentage of your credit limit that you use each month. If your credit limit is $3,000 per month and you buy $1,500 on credit, for example, you have a 50 percent credit utilization ratio that month. Lowering your ratio will improve your credit score, and one of the easiest ways to do this is to pay your bills on multiple days each month instead of all at once. Pay off some of your bills the day before your monthly credit statement closes and the rest the day before your bills are due. This will reduce the amount of debt you have at any given time without requiring you to spend any less. 

Limit Levitation

In addition to paying your bills twice a month, you can further lower your credit utilization ratio by negotiating a higher credit limit. If you can get your credit card companies to let you borrow more each month but spend the same amount as you were before, you will lower your ratio effortlessly. Credit card companies will usually be willing to work with your request, and if they aren’t, you can use offers from other credit card companies as leverage. Just make sure not to use a higher credit limit as an excuse to buy more. If you’re not careful, raising your credit limit could actually harm your score in the long run.

Seeking Out New Sources

Credit bureaus reward consumers who demonstrate that they can handle different types of debt, so try taking out loans from multiple sources. If you need new furniture, for example, buy it on installment or take out a small unsecured loan from your bank or credit union. This will only improve your credit score if you can pay the debt off on time, so only try this tactic if you’re in a secure financial position.