Whether you want to purchase your first car, your first home, or apply for your first apartment, institutions are going to run a credit check. This can be a painful process if your credit score isn’t as high as you need.
Stated by a credit repair Dallas expert, those few late payments or that credit card you closed a few years ago can really hurt your credit score and financial freedom down the road.
So what can you do to improve your credit score? It might sound funny, but the answer lies in your wallet. Read on to discover how using your credit card can help improve your credit score.
What is a Credit Score
According to a A credit score is a number that indicates the likelihood you will pay your loans off on time. Three companies produce your credit score, including Equifax, Experian, and TransUnion.
While all three have slightly different methods of determining your score, they all use the same factors, including:
– How many credit accounts you have open
– The types of credit accounts
– Credit available vs. used credit
– Credit history
– Payment history (i.e. late payments)
Do you want to know the best part? You can directly impact every single one of these factors!
Let’s take a look at the essential elements next so you can be on your way to having the best credit score possible.
How Many Cards?
While this one is a bit of a mystery, it’s commonly known that if you have a dozen credit cards, your score will suffer. Why is this?
Companies who run your credit score are trying to determine whether you will pay your bills on time. Having more than four or five cards can send the message that you might not have sufficient funds to pay, and you’ll need extra credit to hold you over.
Keep your cards to a manageable few, and your score will be sure to improve.
Every credit card comes with a credit limit, or the maximum amount of money you can spend. If you habitually max out your credit cards and use all available credit, your score will go down.
If, however, you keep your used credit around 30% of your limit or lower, your score will steadily improve. What does this look like?
If you have a $1,000 credit limit, you should only use $300 of that credit each month or pay off your card so that amount or less is left on your card.
Your payment history is one of the most significant factors that weigh into your credit score. Remember what a credit score is? It’s a number that determines the likelihood you will pay back your loans.
Opening up a credit card, using it for some monthly bills, and paying it off every single month is the biggest thing you can do to improve your credit score. Paying your credit card down every month will steadily increase your score.
Even if you have too many cards or you use more credit than 30% of your available limit, paying off your cards will go the farthest toward improving your credit score.
Do You or Don’t You?
Credit cards sound difficult and scary to manage as much of your credit score is based on your credit card habits.
However, as long as you keep your habits in line and follow the steps outlined in this article, you shouldn’t have any issues. Paying just above the minimum on time, and ensuring you keep your balance low is what it truly comes down to.
So, now, what changes will you make to improve your credit score?