How to build your credit score with minimal effort
Building a credit score isn’t always easy as it might sound. For some Americans, a personal credit score may have been damaged due to defaults on loans, carrying rollovers on credit cards, or missing payments. Other U.S. consumers may be unbanked or underbanked which prevents them from being able to access credit in order to achieve a good score. According to statistics, in 2019 roughly 63 million American adults (22%) were either unbanked or underbanked.
It can take years for some people to build or restore scores to good standing. In the meantime, lenders may be hesitant to offer affected consumers the funds they need to make ends meet, and credit card companies might be less willing to give people a new line of credit or credit with favorable terms. Fortunately, there are several ways consumers struggling with their credit score can more quickly achieve a better standing.
1. Pay bills on time
Paying your bills on time is an important approach to building a solid credit score. Every bill that is paid late will become a blemish on one’s credit history. Late payments can stay on credit reports for up to seven years but positive credit behaviors can help to offset any negatives. Bottom line, consumers who steadily pay their bills on time will demonstrate to lenders their ability and willingness to pay their bills.
2. Make frequent payments each month/>
It’s important to try to avoid making the minimum payments when credit card payments come due because, over time, debt will snowball with high-interest rates tacked onto the overall balance every month. If possible, try to make micropayments instead. What this entails is making several small payments every month.
Micropayments not only help to bring down the overall amount owed, but they also save money on interest. This enables consumers to continuously improve their credit scores.
3. Look for financial assistance
If struggling with making payments because of a loss of income due to the COVID-19 pandemic, be sure to speak with creditors because many are offering financial assistance to consumers. Also, in March 2020, the U.S. government passed the CARES Act to help consumers and businesses get through the financial difficulties stemming from the pandemic. Affected consumers during this time of need should also be sure to look into any government assistance resources to help offset other financial obligations, enabling them to keep up with their goals to build their credit score.
4. Dispute errors found on credit reports
Mistakes on a consumer credit report can have a dramatic impact on one’s credit score. Take the following steps to ensure credit reports are accurate and aren’t having a negative impact on a credit score.
- Check credit reports frequently. Due to the coronavirus pandemic, one of the several CARES act provisions ensured consumers the ability to access their credit reports once a week, for free.
- Look for obvious mistakes. Determine any blatant mistakes, such as payments marked late that weren’t.
- Identify information too old to be listed. Negative credit information should fall off a report after seven years, if any is still present, dispute it with the credit reporting agency.
Even small mistakes on credit reports can lead to big problems. These can also signal other serious problems, such as identity theft or credit card fraud occurring without a consumer’s knowledge. Fixing errors as soon as possible will go a long way towards boosting a credit score. Don’t be afraid to file a dispute if something doesn’t look right.
5. Become an authorized user
Sometimes consumers who cannot get a credit card on their own build their credit with the help of a family member or friend who has a long history of responsible credit card use. How it works is the credit card holder adds the consumer as an authorized user on their account. In most instances, a person doesn’t even need to use the credit card, their credit can be improved by being associated with a person with good credit. It’s a strategy best used by people with a “thin” credit history who need to “fatten” it up.
6. Don’t close old credit accounts
Many people looking to strengthen their credit scores immediately start closing accounts so they can focus on the ones they are using. However, closing old accounts when trying to build a better credit score is a bad strategy because it directly impacts a person’s overall credit utilization calculation. This can lead to a score actually decreasing because it decreases the amount of available credit. In other words, if a person owes money on their credit cards, the higher their overall credit limit, the further they are away from maxing out available credit. If they close that gap, it drags down a credit score.
7. Pursue an alternate credit score
Many people assume traditional credit scores are the only factor lenders take into consideration. This is a fallacy – an alternate credit score can also help open access to lines of credit or loans. How it works is consumers pay their everyday expenses, such as utilities, phone, and internet bills on time. Payments made are tracked in real-time. As a result, consumers can demonstrate their creditworthiness to creditors and other lenders to gain access to credit, along with loans with more favorable terms.
Connect, has been working with consumers since 2005 with its alternate credit score program. To learn more about our process, the helpful financial tools we offer (e.g. bill payment reminders), and how we can help you to achieve a healthy credit score, contact us today.