If you’re ready to take control of your finances and work towards goals like getting approved for credit cards with better features, a higher credit score will help you secure the best possible options. To make your search as simple as possible, consider using a financial search engine like Fiona to get matched with a credit card that’s right for you.
There are generally two groups of borrowers who need to work on their credit scores: those with no credit history and those with a poor credit history. If you have no credit history, this means you have no history of taking out credit cards and have not borrowed money from any kind of financial institution in the last 7 years. Luckily your score doesn't start at 0, however it doesn't take much to move the needle in either direction.
Those with poor credit have a history of not paying their debt on time, revolving debt, only making minimum payments, taking out too many accounts or declaring bankruptcy. It's important to understand the factors that contribute to your credit score in order to keep it as high as possible. With these in mind, we've compiled a hit list if your credit is less than great.
A history of on-time payments will help you establish your credit-worthiness. Utility companies, cell phone providers and cable providers are among the many institutions that keep records of payments made—and you can use these records to show that while you may not have credit, you do have a good track record of paying your bills in full.
Making on-time payments can help boost your credit score. Late payments and their associated fees harm your credit score. If you are having trouble paying on time, then call your FI and see if they can do anything to help!
You should have no debt to pay down.
There are two approaches when it comes to paying down debt. The first is to pay down your smallest accounts first so the gratification of getting to that zero balance faster motivates you and you have fewer accounts to worry about. The second is to pay off your largest and/or highest interest accounts first, since those accrue the most interest payments and can end up taking a while to pay off.
No matter which method you decide works best for you, you should pick one and stick to it. Committing to paying off your debts and paying them in an organized fashion will help you stay on top of your debts and ensure you’re making the most of your payments.
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Opening a credit card with a gas station or retailer can help diversify your credit mix. When added to your history of on-time utility or rental payments, a card that shows on-time payments helps demonstrate that as a borrower can manage multiple debts at once and continue to be on-time. This is the exact behavior lenders look for and reward.
Buried under a mountain of credit card debt? Then opening a new card will not diversify your credit mix!
The key to this step is to add a type of debt that you do not currently have. You might consider applying for a small personal loan. By taking out a small loan that you know you can pay back, you will establish a history of being able to manage diversified accounts, showing future lenders that you are a trustworthy borrower.
Get educated on card rates and terms. Use a financial search engine to compare rates and terms. Look for sites that also offer customer service professionals that you can talk to or email with to make sure you fully understand how your credit card functions and what steps you need to take to ensure you get the best offer available.
If you have older accounts, then the only reason you should consider opening a new credit card is if you get an offer of a low interest rate and low or no charge for a balance transfer. You can transfer money between lending institutions to pay off debt. But, this maneuver only boosts your credit score if you make on-time and early payments on the new card that demonstrate your ability to pay off the debt.
With no credit history you should have no credit cards on record. You can skip this step!
The older your account, the better it establishes your credit-worthiness. If you do want to close out a credit card or two, make sure you are closing your most recently opened accounts. Older accounts demonstrate longevity and consistency—two key qualities financial institutions like to see in borrowers.
No matter your credit history, you should monitor your credit report. The first step is to review your entire credit report. You should be checking that any account reported is definitely an account you opened, and that any closed accounts are properly recorded as such.
Checking your credit report is also a great way to protect yourself from financial scams and hackers. Identity theft can lead to various accounts being opened without your knowledge—so regularly monitoring your credit report helps keep you protected if there is a data breach.
Once you’ve reviewed your credit report, you’ll want to keep an eye on your score to make sure it reflects your credit-worthiness. If you have a checking or savings account, your bank probably offers a monthly or quarterly look at your credit score. This is a great (and free!) way to monitor your credit score.
A poor credit score or lack of credit history should not stop you from pursuing your financial goals. And now that you’ve reviewed all the steps to build or rebuild your credit, it’s time to get started!
If you’re ready to diversify your credit mix or open a new account, use Fiona today to assess a variety of credit card options for your financial circumstances.
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