By Kris McDowell
As the foundation of modern financial life, a credit score plays a large role in helping you qualify for the best borrowing terms on products such as mortgages, credit cards and other loans. “Your credit score isn’t just a number, it’s the key to a financially sustainable future,” says Chris Folkerts, Consumer Lending Manager, OnPoint Community Credit Union. Although many Americans seek ways to quickly improve their scores, Folkerts says, “Building good credit takes time.” That said, there are steps that you can take to get started right away to build, maintain and improve your credit score.
A critical step in improving your credit score is to ensure your credit report is accurate. The US Consumer Financial Protection Bureau recommends consumers check their credit reports at least once per year. Fixing and removing bad or fraudulent information, on your own or with the help of a financial expert, can raise your score considerably. Everyone is entitled to one free annual report from all three major credit bureaus at annualcreditreport.com.
Paying your bills on time can have a significant impact on your credit scores. Because bill payment history constitutes a portion of your total credit score, missing payments or being late will negatively affect your score. Showing you have responsible debt management by making payments on time translates into a better score. Consider setting up automatic payments or creating calendar reminders to track when payments are due so you don’t miss a due date.
Another major factor contributing to your credit score is credit utilization, or the amount of available credit being used versus the available amount. Using too much available credit may reflect negatively on a credit report. Manage utilization first by paying down debts that are close to their limit, paying more than once in a billing cycle and requesting a credit increase if you are in good standing. Additionally, consolidating debt can help lower utilization by transferring balances to a new card or loan, thus freeing up other forms of credit.
Lenders are more willing to work with someone who is proactive about managing their debt and there are many resources available. Credit counseling organizations, such as OnPoint Community Credit Union partner, GreenPath Financial Wellness, and nonprofit credit counseling and debt management agency, Take Charge America. Organizations like these can help create customized budget, action and structured repayment plans.
Contacting lenders about refinancing high interest rate accounts is also an option. The lower the rate, the more money you save every month. Even small amounts of money saved will add up over time.
In reviewing your credit score you may find old or unused accounts that you may have forgotten about. Avoid the urge to close these accounts as doing so may negatively affect your credit score. Even if you are no longer using an account, it’s best to keep it open to help your score.
Finally, remember that building or improving credit doesn’t happen overnight. Updates to credit scores can take anywhere from 30 days to years, depending on your specific financial situation. Work with a financial institution to help outline a plan that works for you, be patient and, if possible, start working on building an emergency savings fund for the future. Having a “just in case” fund to offset unexpected costs in the future will help maintain the good credit score you’ve worked to achieve.