Top 4 Tips For Building Better Credit

If difficult financial circumstances from your past are still haunting you in the form of a low credit score, you’re not alone. It has been estimated that 31% of Americans have a “subprime” credit score of lower than 670. A subprime score is used to identify consumers who may have difficulty paying back their loans. Even though some lenders will work with subprime borrowers, if you have a score in the subprime range, you may be limited from obtaining credit. The good news is that your credit score is an ever-evolving metric that you can change. It will take perseverance on your part, but the sooner you get started, the sooner you will see your credit score begin to swing in the right direction. Here are five tips to help improve your credit score.

Pay Your Bills On Time

One of the things lenders are most interested in when they check your credit is whether you have a history of making your debt payments on time — including your mortgage, HELOC, and credit cards. If they see no late payments on your credit report, they are more likely to believe you will pay them on time, too. That’s why payment history is the factor that most affects your credit score. If you have a history of making late payments, they can stay on your credit report for up to seven years, although the effects on your credit score lessen over time. Recent late payments are weighted more heavily than older ones. If you are currently late on any payments, get them caught up as soon as possible and commit to paying them on time each month going forward. Set up auto pay and calendar reminders to check that the bank made your withdrawals on time and you are current on all your bills.

Add Utilities & Rent to Your Credit Report

You may think that making all your payments on time will surely help improve your credit score, but that isn’t always the case. The truth is that lenders will only see the payment history that creditors report to the credit bureaus, both positive and negative. Many types of payments do not get reported unless you request they get added to your report, including utilities, phone, and rent. The reason many of these go unreported is that creditors have to pay a fee to report them. But when you’re trying to build up your credit history, it is beneficial for these payments to be included. There are a variety of ways you can go about requesting that your utility and rent payments get added to your credit report. Experian Boost is a free opt-in service you can enroll in that will scan your bank account for these specific payment types. Once you verify which data you would like added to your credit file, your FICO score will reflect your utility and telecom payments. Rental Kharma and LevelCredit are rent-reporting services that can help you build your credit by putting your on-time rent payments on your credit report.

Become an Authorized User

Another way to affect your utilization ratio is to become an authorized user on someone else’s credit card. When you are an authorized user, you will receive your own card (though you do not have to use it), but the primary cardholder is responsible for making the payments. The balance and payment history of this account will be included on your credit report, so as long as the primary cardholder is using their credit responsibly, it could help boost your credit score. Caution: there are drawbacks to becoming an authorized user. If the account holder makes a late payment, or the account has a high utilization rate, it will affect your credit score. Also, once you stop being an authorized user, the account history may not show up on your credit report.

Don’t Close Unused Accounts

Once you’ve paid off credit card balances, go ahead and keep the accounts open, as long as you are not paying an annual fee. If you close the account, it will reduce the credit limit portion of your utilization rate and may drop your credit score. Maintaining the account means that your credit utilization rate will benefit from the low balance and the credit limit.