Your credit score is a vital part of many essential life transactions. It impacts the amount of financing you can get for a car or home, what credit cards you qualify for, and the loans you can receive. And yet, most people don’t think much about their score until the first time they get denied.
If you have a low credit score, you might not be able to make those big-ticket purchases. Your credit can even impact your job chances, as many employers will use credit scores to help them decide whether to hire you. Luckily, there are things you can do to improve your credit and put you on the path toward a healthy financial future.
Know Your Score
The first thing to do is simple: Check your credit score. Many people don’t check their credit score regularly, which can lead to overestimating credit or missing credit fraud details. By getting your free credit reports every 12 months, you can examine your credit statements for missing or incorrect information. The Federal Trade Commission reported that one in five consumers has at least one error on their credit statement and that resolving this error improved scores significantly for about 20% of those who reported the discrepancies.
Check Your Credit Utilization
Your credit utilization ratio is one of the main tools credit scoring companies use when evaluating your creditworthiness. It’s determined by taking the amount of credit you use and dividing it by the amount of credit you have, then multiplying by 100. So if you have a 1,000-dollar credit limit and you’ve used $800 of it, your overall credit utilization ratio is 80 — which isn’t great. If your debt is split among multiple cards, you’ll also have a per-card credit utilization ratio; both are weighted heavily in your credit report.
There is some dispute as to the “best” ratio to have, but most experts say you shouldn’t use more than 30% of your credit on any one card. In general, it’s better to be conservative with your credit usage; getting your cards paid down will help you see an increase in your credit score.
Clean Up Unpaid Debts
If you have missed payments, overdue bills, or other debts impacting your credit score, you might want to look into working with a professional to pay these down. While debt settlement might not improve your score immediately, it’s still a good idea to work on paying off creditors who have marked your account as delinquent. A professional can help you assess your credit report and can work with you to either settle your debt for a lesser amount or consolidate it into a payment that’s easier for you to handle, letting you get back on track.
While delinquent marks often remain on your credit score for up to seven years, you’ll no longer worry about that account hanging over your head. Without those payments to concern you, you’ll have the freedom to turn your attention to improving your credit in more immediately manageable ways.