Wise Tips on Improving Your Credit

Bad credit will hinder your ability to purchase a home, by a car, start a business and even stop you from funding your education. Therefore, it is necessary to make sensible financial decisions and build good habits to ensure your able to maintain a good credit history.

However, this is common knowledge. We know what credit is, what it does, and that bad credit will affect your financial life. But what is not commonly known is, how to build and use credit the correct way. Here are some Wise tips on improving your credit.

Monitor your payment history.

It is imperative that you monitor your credit history, to improve your credit score:

  • Make it a HABIT to make your payments on time.
  • Depending on the type and size of the debt, try paying the full amount. Avoid only making minimum payments every month.  
  • In some cases, contact the lender if you believe you will have trouble paying that month.
  • Avoid skipping payments at all costs.

 Be WISE with your credit.

Avoid going over your credit limit. For example, if your have credit card of $5,000, do not go over that amount. Using more than the authorized limit will not cost you extra in monthly fees, it will also lower your credit score.

 A rule of thumb is, try using less than 35% of your available credit. Maintain a good Debt-to-Credit Utilization Ratio. It is better to have a higher credit limit and use less of it each month.

 For example:

  • a credit card with a $10000 limit and an average borrowing amount of $3,000 equals a credit usage rate of 30%
  • a credit card with a $2000 limit and an average borrowing amount of $1500 equals a credit usage rate of 75%

You are a greater risk to lenders if you have a high debt-to-credit utilization ratio. Even if you make all your payments on time. Someone who has missed maybe one or two payments but has a good utilization ratio will be more attractive to lenders.  

 Older the credit account the better.

The older the credit account the better. What is meant by that is lenders like to see that you have had account for a long time, and you are not closing and opening new accounts often. Remember, if you transfer an older account to a new account, the new account is considered new credit.

 I recommend keeping an older account open even if you do not need it. Use the account less frequently, on a few purchases just to keep it active. Check your credit agreement to find out if there is a fee for inactivity or contact your bank to find out more.

 For example: Often there are promotions for credit cards that have lower fees and rates. You may want to transfer one account to the product being offered. The new product or credit card issued is considered new credit.

Limit credit applications and inquiries.

It is expected that you will apply for credit when necessary. But in most cases when lenders, creditors and others ask to check your credit, it is recorded as an inquiry. Inquiries are also known as credit checks.

Too many credit checks in your report may lead a lender to believe:

  • You are urgently seeking credit
  • You are trying to live beyond your means
  • You struggle with approvals

You most try to limit the amount of inquires on your credit report. Try getting your checks within a three-week period when shopping for mortgage or car. You run the risk of having your inquiries combined and treated as one inquiry for your credit score. In the end you must try to apply for credit only when you really need it.

Credit checks: “Hard hits” versus “Soft hits”.

“Hard hits” are credit checks that appear in your credit report and will affect your credit score negatively.

Some “hard hits” may include applying for:

  • Line of credits
  • Car loans
  • Credit cards

“Soft hits” are credit checks that appear in your credit report but only you can see them. These credit checks do not affect your credit score negatively.

“Soft hits” may include:

  • Requesting your own credit report
  • Checking your credit app
  • Checking your score on your online banking

Try keeping a few different forms of credit accounts open at once.

A good way to up your score is to have different forms of credit open in your name. Lenders like to see that you can handle different accounts. It is beneficial to have a mix of different types of credit, such as:

  • Credit card
  • Car loan
  • Line of credit

In the end, we all need credit to live our lives, comfortably. Unfortunately, your credit history, is just that HISTORY. Sometimes your financial past can come back to hunt you. Like good health and fitness, good finances and credit is built first on your habits. Form good habits and apply these strategies and you will have A1 credit in no time.  

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