If you have a credit card or a loan, then you have a credit score. This ranking serves as an indication of whether or not a lender will give you money. Credit scores come in handy when you are considering making a large purchase like a home or a car as well as can determine your interest rate on loans.
Though, the time to consider your credit score is not just when you are looking to make a purchase. The better your credit score, the increased likelihood of getting any type loan at an affordable rate. Credit scores range from 300 to 850 with FICO considering “good credit” to be in the 670 and 739 range.
It may seem arduous, but building good credit is possible to attain with consistency, knowledge, and patience. Financial expert Aisha Taylor, the founder of Frugal-N-Phenomenal, a faith based movement with a mission to help single moms achieve financial success and wellness, sat down with Essence to share tips and tricks to help you improve your credit score and access better financial opportunities.
Bills, Bills, Bills. (Pay Them On Time)
Taylor shares, “ On-time payments represent about 35% of your credit score, which is the single biggest factor affecting your credit score.” If you are tempted to miss a payment, you may want to think again. Taylor continues, “A missed payment can reduce your credit score by 70-90 points. Late payments can also stay on your credit report for 7.5 years with more recent late payments having a bigger impact than payments missed long ago.” Paying your bills on time and catching up on late payments will help you increase your credit score. She recommends creating a budget and setting reminders to help you pay your bills on time and says, “This allows you to allocate where your money is going and ultimately pay your bills on time.”
Maintain A Low Credit Utilization.
Credit utilization is how much debt you owe vs your available credit. Keeping your credit utilization under 30% of your limit is helpful to your score. Taylor says, “anything over that begins to reduce your credit score with maxed out credit cards causing the most harm to your score. By creating a budget, examining ways to earn more, and reducing spending you can allocate more money towards debt repayment which helps to improve your credit utilization.” If you are inclined to spend more on your credit card, really think before you swipe—utilization accounts for about 30% of your credit score.
Request Higher Credit Card Limits.
You just learned that you should keep your credit utilization under 30% of your score. High interest rates can make it more difficult to chip away at your bill. Taylor shares this credit card hack: “By increasing your credit limit, your utilization rate will automatically go down.” However, once you do this, consider taking a break from that credit card until you pay it down or don’t opt for this if you know you have difficulty controlling your spending. Taylor reveals, “This reduction in credit utilization rate will increase your credit score if you don’t increase your spending.”
Dispute Credit Reporting Errors.
When was the last time you actually pulled and looked at your credit report? By law, you can do this once a year for free from each of the major credit card unions (TransUnion, Experian, and Equifax). You can access this via AnnualCreditReport.com. In 2012, the FTC commissioned a study and discovered 1 in 5 Americans had a mistake on their credit report. When interviewed by 60 Minutes, FTC Chairman Jon Leibowitz revealed that “One out of ten [people] has an error on their credit report that might lower their credit score.” Taylor recommends, “ Request your free credit report and then review the report for errors. Mistakes can include accounts that aren’t yours, payments marked late that were paid on time, accounts that are paid in full but haven’t been reported paid, or negative information that is too old to be on your credit report. Once you identify the errors, gather the materials to support your claim, and then contact the credit reporting bureaus to request they be removed.”
Get A Credit Card For One Specific Bill.
Building your credit can happen one bill at a time. Taylor advises to “get a credit card and then put a small, recurring bill on there and pay it off automatically every month.” Consistently paying off a bill and your card in full monthly will help build your credit history and illustrate that you make on time payments. Taylor advises, “If you have a small recurring bill like a cell phone bill or a cable bill, have that bill charged to your credit card. Then set up an automatic payment to pay it off every month. Paying it off automatically will help you to avoid forgetting to pay it.” However, this option may not be great for someone who doesn’t have a lot of experience with credit cards or if you will have difficulty carrying multiple balances at once. More credit can lead to more spending and we’re trying to lower your debt, not raise it!
Avoid Hard Credit Pulls.
Each time a lender checks your credit, it can negatively impact your credit score. Even though it’s slight, when you are building or repairing your credit score, every point counts! Soft credit pulls are inquiries you don’t initiatie, for example, when someone checks your credit as part of a background check for an apartment or a credit card company checks your credit to see if you can apply for the latest credit card. Taylor shares, “Frequent and new inquiries that you initiate can drop your score by a few points. Therefore, please keep hard pulls to a minimum or if you need to initiate a credit pull, ask the company if they can do a soft pull instead.”
Building your credit score takes time and work, but Taylor tells her clients to stay diligent and committed. She encourages, “Don’t get upset at yourself about where you are starting. Honestly, it’s neither good nor bad. It is what it is – a starting point. The most important thing is that you are making the decision and the commitment to grow. Once you decide to grow, nothing can stop you. Keep putting one foot in front of another with confidence knowing that you can do it. I’m rooting for you. Good luck!”
Before you even attack your credit score, really assess your finances. Don’t hide! Taylor explains, “It may be tempting to avoid the debt collectors or avoid calling your lenders. However, it is better to be proactive in contacting the companies you owe. If you are having a hard time, then call your creditor to make a payment arrangement, ask if there is a payment deferral program, or another program that will help you before the payment is due. If you qualify, this will avoid the late payment being reported to the credit bureau and can also avoid late fees. If you are already more than 30-days late, then ask if there is a way that they can stop reporting the late payments if you agree to a payment plan.”
Communication is key in these situations. Creditors are more willing to work with lenders if they know you are facing hardship. During Covid-19, many credit card companies had special repayment programs for individuals who lost their job or were financially affected by the pandemic. You won’t know if you don’t ask. You can’t receive help if no one knows you need it! Avoidance is never better than acceptance. Taylor adds, “This upfront communication keeps your options open for repayment and reduces the likelihood of your account going to collections, incurring late fees, or being reported to the credit bureaus.” When you know how much debt you have and what you owe, it will help you make better financial decisions. If you are trying to raise your credit, here is some advice that will have you on the road to 850, even if you have limited income.
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