You’re not doomed if you find yourself in a sticky financial situation, no matter how heavy it feels. There’s always a way out even if it takes years — and good financial habits will get you there faster.
If a poor credit score is stressing you out, close your eyes, take a deep breath, and commit to raising it. Now take some time to consider these tips so you can be financially better off down the line.
1. Get a Credit Builder Card
Making credit card payments is one of the most effective measures for building credit. Unfortunately, getting approved for a new credit card is harder than you’d think. It’s not uncommon to be denied, and the application process can become a vicious cycle. Without a score high enough to get approved, you won’t be able to use a credit card to build it.
Luckily you can get around this with a credit builder card, which is designed for people in this situation. Such cards require a security deposit or a funds transfer from your checking account, an amount that becomes your credit limit. This makes these cards a lower risk for the bank and therefore easier to get approved for. Use your card wisely and make on-time payments, and the credit bureaus will reward you with a higher score.
2. Take It Slow
Building credit is all about showing lenders that you’re financially responsible over a long period of time. That’s why a credit score takes so long to build — payment history, account age, and credit mix can all make or break it. As a result, it’s notoriously difficult for young people to have good credit because their account ages are naturally low.
What this means for you is that the positive changes you make won’t have immediate impact, unlike the negative ones. You may, for example, keep your credit utilization under 30% of your total credit, as the experts advise. Yet all it takes is one missed payment to erase much of your good work. That’s no reason to throw in the towel, though. Be methodical about improving your spending and payment habits so you can truly see the benefits in the future.
3. Use Credit Reporting Services
Just because credit building occurs slowly doesn’t mean it has to go at a snail’s pace. Your credit card and loan payments aren’t the only payments eligible to be reported to credit bureaus. Free services like Experian Boost can report your utility, cellphone, and streaming service payments, which may have a modest impact on your score. For a fee, services like Rent Reporters and Rental Kharma will do the same for your monthly rent.
While reporting your cellphone and streaming service payments won’t have a huge effect on your credit score, every little bit helps. Rent reporting can be more impactful, but it will cost you. It may be worth it, though, if you’re anticipating a major purchase and need to raise your score in short order.
4. Pay on Time
You need to make at least your minimum credit card and loan payments on time each and every month, no exceptions. Payment history is the biggest factor in your credit score, accounting for 35%. Therefore, making on-time payments should be your highest credit-building priority. Set up autopay for your monthly credit card payments so you never miss a due date.
Contrary to what some believe, keeping a balance on your card from month to month is usually not beneficial. So if you can pay off your balance in full each month, so much the better. Not only will you avoid interest charges, you’ll be rewarded for your low credit utilization. That figure — the percentage of your total credit that you’re using at any given time — constitutes 30% of your score.
5. Become an Authorized User on Someone Else’s Card
Another opportunity to boost your score is to talk to somebody with good credit who trusts you. If they’re comfortable doing so, they can add you to their card as an authorized user. Associating with this person financially will boost your credit score because, essentially, if they are trustworthy, you must be too!
This can, however, become an issue for the person in question if you use their card recklessly. After all, they remain responsible for paying the bill. It’s a risky situation for the main cardholder, which is why it’s so important that they trust you. But as long as you act responsibly, it can be a helpful way to boost your credit.
6. Find a Co-Signer for Big Purchases
In the same vein, you can have a financially reliable person be a co-signer on any loan for which you need approval. For example, if you don’t have good enough credit to buy a car, a co-signer will contribute theirs as well. While they won’t raise your credit, a co-signer with good credit acts as a safety measure for the lender. That’s because the co-signer will be on the hook for your loan payments if you default.
Given that possibility, you’ll need to be a person your co-signer can trust. Getting a co-signer isn’t a long-term solution for your credit woes, but it can help you bypass some obstacles. Just remember that your co-signer’s name will also be on the purchase or loan in question.
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Look Forward, Not Back
Even if it’s tough, do your best to focus only on the future. Maybe you made some money mistakes or got caught in a bad financial position unwillingly, but that’s in the past now. It’s always important to learn from mistakes, but don’t beat yourself up about them.
Instead, focus on where you want to end up after all of this. How can you use what you’ve learned to meet your ultimate credit goals? In truth, you’re doing the best you can, and barring unforeseen circumstances, it’s all uphill from here.
How you go about building your credit will depend on your needs and situation. But with conscious effort and discipline, you can improve your financial position.