We all know that your credit score helps loan issuers determine how reliable you are when it comes to money, but most of us don’t check our credit score until we are trying to buy a new car or a home. Sadly, if your credit score is already damaged, there is no easy way to raise it. Like love, the only thing that can heal a broken credit score is time. However, there are ways that you can keep ahead of your credit score and make sure it stays healthy, so when it is time to buy your car or that new house, your credit score will be primed and ready to go.
1. Know your credit score
The first thing you need to do is find out what your credit score is. The best way to do this is to sign up for a credit report monitoring service, so that you can continue to monitor your credit score as you try to keep it healthy. Most of these services charge a monthly fee, but also come with extras such as identity theft protection and helpful tips to raise your credit score. The best of these is Lifelock, as it offers $1 million in insurance for identity theft as well as cool perks such as removing your name from junk mail lists. If you don’t want to spend the money to monitor your credit, Credit Sesame is completely free. Seriously, you don’t even need to put in your credit card information. This also means you don’t get a lot of the perks, such as access to your credit report or identity theft protection, but you do get monthly updates of your credit score, which is really all you need.
2. Keep credit card balances down
The main thing to know about your credit score is how it is determined. One of the main factors is your credit utilization ratio. This ratio is basically how much credit you have (your credit limits added together) divided by the total balance you have on all your credit cards. This basically shows the percentage of the credit you are using. If your balances are high, the ratio dips lower, hurting your credit score, so make sure that you are paying off your credit card each month to keep your credit score at its healthiest.
3. Hold on to credit cards
Don’t cancel your credit cards, especially ones that you have had for a long time. There are two reasons for this. First, the credit limit on that card adds to your credit utilization ratio. If you have a total $10,000 credit limit, but cancel a card with a $2,000 credit limit, your total is now only $8,000 and the ratio goes down, hurting your credit score. In addition, your credit history also plays a large factor in determining your score, so the longer you have a credit card, the better it is for your credit history. If you don’t have a lot of credit cards and want to improve your credit utilization ratio, here are some credit cards that we recommend to increase your limit and actually save you money in the process.
4. Diversify your credit portfolio
One of the other main factors in determining your credit score is how diversified your credit portfolio is. Having just credit cards on your credit report can hurt your credit score. Make sure you also have some type of loan, whether it be a student loan, an auto loan or a mortgage. This shows that you are capable of handling more than one type of credit.
5. Avoid applying for too much credit
One of the smaller, but still important, factors that affects your credit score is how much credit you are applying for. If you apply for a credit card, a mortgage and a car loan all in the same month, it’s going to drag down your credit score. Even applying to five different credit cards at the same time can have the same effect. This affects your score because it seems as though you might be taking on too much debt at one time. Make sure you are spacing out your loan and credit applications so they don’t affect your credit score.
Need to raise your credit score now? If it’s too late to go through these steps and you need a quick boost to your score to get that mortgage or loan, you could try credit repair services. These don’t always work, especially if your credit report is free of errors or your lenders are not willing to negotiate. However, if you are willing to try, we put together a list of the most reliable credit repair services that we found follow all the rules of credit repair and are highly ranked from the Better Business Bureau.