Your credit score can affect everything, from what types of cards you have the right to know if you will be granted a car or a lease of an apartment. Obviously, it's incredibly important; But, according to a recent report, almost half of the adults surveyed had an important misconception when their credit score was created.
When Credit Credit Insider spoke about 1,051 adults about their finances, 42% of people said they believed they could use their debit card or select "credit" while using their credit card. Debit builds your credit history or score – but that is not true. Debit cards have no impact on your credit score and, whether you select "credit" or "debit" at the time of making the purchase? All it does is determine how the merchant processes the card and what rates he pays.
"There are many misconceptions about how to build credit," says Ted Rossman, an industry analyst at the credit consulting site, CreditCards.com. Because a debit card comes from a set of money that you already have, explains, the use of it does not affect your credit score. The payment of your credit cards or the loans on time, however, does. "Generally, building credit means showing that you can pay companies after they have extended a loan or a line of credit," says Rossman.
If you have operated for a long time under the wrong belief On how to build your score, do not worry: there are many ways to continue boosting this number (which for most common credit score metrics is ideal above 700, with 800 as a true goal, according to the company of Experian credit reports). Here, Rossman and other financial experts share the best and easiest tips to increase your credit score.
1. Pay bills on time
"There's nothing really complicated about this: pay your bills on time, every time," says Rossman. "A single 30-day payment could cut 100 or more points of your score, especially if you have a good score before late payment."
Corbin Blackwell, a financial planner to improve the investment in places, points out that automatic payment settings are the easiest way to stay at the top of your accounts. "It takes little effort and we will ensure that your loan payments are always in time," he explains.
If you prefer to see where your money goes every month, set a reminder to your phone to make payments manually.
2. Keep your credit card balance low
Even if you plan to pay your credit card accounts completely at the end of the month, maintaining a high balance can negatively affect your credit score, according to Rossman.
"A key component [of your score] It's your credit usage relationship: basically, a great way to say credit you're using is divided by the available credit, "he explains. If you have charged $ 4,000 throughout the month and have a $ 5,000 credit limit, for example , "It stays with a percentage of use of 80% – and that is far superior to the ideal number, which is below 30%.
If you are worried about your proportion, "throw an extra payment or two in the middle of the month to reduce the balance before the statement even generates," Rossman suggests, adding that "the reduction in the use ratio of Credit is one of the fastest ways to improve your credit score. "
3. Check the mistakes of your credit report
Some credit bureaus will notify you if there is a change in your score, but you still have to request a copy of your credit report to read each year. According to the Federal Trade Commission, 20% of adults in the United States have errors in their credit reports and some of these mistakes are serious enough to impact significantly on their credit scores.
"If you see some incorrect information, such as an account that does not belong to you or a late payment that you believe is punctual, file a dispute," says Rossman. It is important to check the errors before you really need to apply for credit, adds Blackwell, since disputes may take time to solve.
You can obtain your credit report for free anytime on sites like AnnualCreditReport, Equifax, Experian or TransUnion.
4. Navigate your credit applications
The diversification of your credit is great, but do not ask for multiple credit cards or loans at the same time, but it can do more harm than good. "Hard queries, such as lenders who get credit reports in response to loan applications, cut some of your score points and the application of several loans in quick succession seems risky," explains Rossman.
This does not mean that you can never apply for a card or a new loan. "The smart addition of the appropriate accounts can help you, especially if you are new to credit or to rebuild credit after a bad step earlier," says Rossman. But when you apply, add, make sure that you have spent at least six months since your last attempt.
5. Add it to a person's trusted card
Another way to favor your credit is to have someone with a good score, who you trust and who trusts you: add it as an authorized user to one of their cards. "Your positive payment history and the low use of credits will be translated to you," explains Rossman.
While the person can give you access to a physical credit card if you wish, you can also choose to add your name to your account to get the benefits of your strong spending habits, but you do not have the ability to pass & # 39; t. This can be a good way to learn how to manage money responsibly without excessive risk, says Jill Gonzalez, analyst at the WalletHub credit report site.
Keep in mind that the bad card owner's expense will also translate into your credit, so just select someone to pay your bills on time and keep your debts low. Luckily, if the account is not useful, you (as an authorized user) can only request a withdrawal from your credit report, adds González.
6. Use a startup card
If you only start to generate your credit, Blackwell suggests using a startup card because it has no quota, a low spending limit and is designed for people with bad credit or low credit, such as students .
If you only post a fraction of your total purchases on this card each month, perhaps your phone bill or other similar payment, and that they regularly pay the balance on time, it will be good for your payment history and your relationship use. .
7. Think of a loan from a loan creator
A loan from credit maker "is essentially a form of forced savings," explains Rossman. For this loan, you will have to leave some money to pay it every month for a year; At the end of the period, the amount will be maintained, usually less relatively small installments.
And since these loans are offered by many credit unions such as Equifax and TransUnion, says Rossman, they can be simple ways to help your credit.
8. Obtain a secure card
If your credit is so bad you can not get approval for a new card, or you are only starting to create your credit from scratch, you may want to get a secure card. "With these, the cardholder makes a deposit that serves as a credit line," explains Rossman. After several months of positive payment history, users can recover their deposits and upgrade them to traditional (unsecured) credit cards.
"There is no risk to the issuer because of the deposit," says Rossman, while González adds that with this type of card, "the approval is basically guaranteed and the non-payment is impossible."
Even if you do everything possible to increase your score, remember that good credit accumulates over time, so do not expect to change from day to day. But that does not mean that you do not have to put all the effort you can do. "The end result is that, while maintaining your credit score, it costs nothing and does not take too long, it can save you thousands of dollars in interest rates in the future," González explains.