5 Alternative Ways to Build Up Your Credit Score
Is there a more sophisticated way to build up your credit score beyond paying off accumulated debts every month? Perhaps you need to accelerate the improvement of your credit score to qualify for a personal loan or mortgage. Or you might only have a little leeway to play with, depending on your current financial situation. Although you can’t ‘game’ the credit scoring algorithm as such, you should find that these five strategies help you achieve your best possible score.
Make (Your) Credit History
Your credit history, the personal chronicle of how often you make loan and credit repayments on time over a period of time, is the single most significant factor in determining your credit score. Yet 62 million Americans don’t have enough credit history on their report to even generate a score. This is called having a ‘Thin File,’ and it means you’re essentially paying the penalty for never having applied for credit.
To build your credit history, start early with manageable borrowing on credit cards, for example, and always repay on time. If you can build up a history across a mix of loans, such as car financing, store cards and student loans, you will receive a further boost. You don’t even have to carry a balance on your accounts to increase your credit score, so you can build your credit history without overstretching yourself financially.
Check for Mistakes
You only get one free credit report a year from each of the big three credit agencies, which means you can be some way behind the actual credit scores that most lenders use. Even more worryingly, your score might not just be out of date. As many as 26% of consumers in the U.S. have at least one error in their credit report. This could be a negligible error, such as a spelling mistake, but for one in five consumers, the error is significant enough to affect their risk profile negatively. That’s why it’s essential to take a proactive approach and check your report early and often for any errors.
Keep your Credit Utilization Low
If you are consistently nudging the upper limits of your credit utilization, your credit score can either languish or decrease. Aim to follow the 30% rule instead, paying off your higher balances and interest rates first, paying twice a month if possible, and avoiding minimum payments until your credit utilization is no more than around a third of your available limit. It works the other way too. If you’re a customer who regularly pays on time, you may be able to lower your utilization rate by getting the issuer to raise your credit limit.
Tip: Sometimes, the payment due date you see on your credit card statement is actually later than the date the issuer reports to the credit bureaus. That means that even if you pay off your balance, it is too late to affect your score. The solution? Find out what day the issuer reports, and pay before that date.
Request Soft Searches for New Credit
Every time you apply for a new loan, the lender will make a search on your credit report. Since ‘hard’ inquiries temporarily impact your credit score, ask the lender to make a ‘soft’ search if possible. A soft search will reveal your current debt, existing loans, and payment history to the lender, but it is only visible on your report to you. A hard search goes into more forensic detail, and it does leave a trace on your report. Typically, hard searches are only necessary when you have agreed to a loan or sign up to a new contract. If the purpose is just to scout out the options, request a soft search only.
Monitor Joint Accounts
If you’re wondering how joint checking accounts affect your credit score, bear in mind that regular deposits into (and debits from) a joint account have no impact. Once there are missed payments or unpaid debts on a joint mortgage or loan, however, your credit score could be affected. That’s why it’s important to engage joint account holders in your quest to build your credit score, or close any joint commitments where the other signatory is likely to put your score at risk. Note that being married to someone or sharing the same address does not make you joint account holders. The term applies only to co-signatories of a loan.
It’s important to emphasize that there’s no quick fix when it comes to achieving your best credit score. Rather, the focus should be on developing the habits and skills that yield results. Need help? You’ll find the tools you need to track, build and master your credit score here.
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