Use A Loan To Consolidate Credit Card Debt
Credit utilization ratios only consider the balances and limits on revolving credit accountscredit cards and lines of credit. If you use a personal loan to pay down credit card balances, you’re moving the debt from a revolving account to an installment account. The primary motivation for consolidating credit card debt is to lower your interest rate or monthly payment. But now you know why consolidating credit card debt could also help your credit scores.
Do Not Pay Your Accounts In Collections
If a collection agency will not remove the account from your credit report, dont pay it! Dispute it! A collection is a collection. It doesnt help your score AT ALL to have a bunch of collections on your report with a zero balance. The only way your credit score will improve is by getting the collection accounts removed from your report entirelly.
Dont pay collection accounts without a pay for delete letter. A pay for delete is an agreement that you will pay the outstanding debt if the collection company deletes the account from your report. You may be able to settle the balance for less than you owe, but many will want you to pay in full if they are deleting it from your report.
How Can I Check And Monitor My Credit
You can check your own credit it doesn’t hurt your score and know what the lender is likely to see.
You can get a free credit score from a personal finance website such as NerdWallet, which offers a TransUnion VantageScore 3.0.
It’s important to use the same score every time you check. Doing otherwise is like trying to monitor your weight on different scales or possibly switching between pounds and kilograms. So, pick a score and get a game plan to monitor your credit. Changes measured by one score will likely be reflected in the others.
Remember that, like weight, scores fluctuate. As long as you keep it in a healthy range, those variations wont have an impact on your financial well-being.
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Option 1 Request A Credit Limit Increase
Another way to reduce your credit utilization ratio if youre carrying high balances is to bump up your credit limits.
For example, if youre carrying $700 in debt on a card with a $1,000 credit limit, your credit utilization is 70%. If youre successful in increasing your credit limit to $2,000, then your utilization rate drops to 35%.
Some issuers make it easy to request a credit limit increase via your online account. For example, Citi allows cardholders to make such a request on the Credit Card Services page:
You can also call the number on the back of your card to make the request. Know that some issuers may conduct a hard pull on your credit before granting you a higher credit line, which can ding your credit score a few points. Your score will recover, but inquire exactly how your request will be handled before you allow them to proceed so you know what to expect.
Note: If youve only had the card a few months, have a history of late payments or are carrying really high balances, your request may be denied until youre seen as a less risky customer.
How much will this action impact your credit score?
The impact a credit line increase could have on your credit score depends on much of an increase you get. If its enough to bring your utilization under 30%, you should see a reasonable increase in your score. However, it wont improve your score as much as paying off your balance and bringing your utilization to or near zero.
Lower Your Credit Utilization Rate
The fastest way to get a credit score boost is to lower the amount of revolving debt youre carrying.
The typical guidance from personal finance experts is to use no more than 30% of your credit limit, which applies both to individual cards and across all cards. For example:
- On a card with a $500 credit limit, spend no more than $150.
- On a card with a $700 credit limit, spend no more than $210.
- On both cards , spend no more than $360.
How much will this action impact your credit score?
Reducing your balances is the single most effective way to boost your credit score. Provided you have no derogatory marks on your credit reports, such as late payments or delinquencies, you are guaranteed to see a big jump in your scores quickly if you knock down your balances to $0 or close to zero.
Still, if your utilization is currently over 30%, and simply paying the debt off immediately isnt a viable option, there are a few other ways to lower your credit utilization rate.
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Become An Authorized User On A Family Members Credit Card
Becoming an authorized user is a great way to build credit if you have someone in your family that will allow it. Why? Because if you become an authorized user, you get to take advantage of that persons credit history. Its also pretty easy!
To make you an authorized user, your family member just needs to contact the credit card issuer by phone or through the credit cards online platform. Theyll also need your name, address, date of birth, and social security number.
Clever Ways To Improve Your Credit Score Fast
Playful girl biting credit card, thinking of doing online shopping, standing over yellow background
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Your credit score is a critical piece of your financial life.
If you want a good rewards credit card, youll need a good credit score. If you want to get a low mortgage interest rate, youll need a good credit score.
There are also other non-obvious places where a good credit score can help – like when you want to get a new cell phone or when youre getting car insurance.
Building credit can be a long process where good behavior helps increase your score gradually. Achieving good credit can take years but there are a few steps you can take to give your score a boost.
These wont work for everyone because many solve specific problems but review the list to see if you can take advantage of any of these ideas.
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Track Your Credit Score
When you monitor your credit score, you can intervene quickly if it drops. You can address factors that influence your score, such as high balances, late payments or too many recent hard inquiries. There are many ways to check and monitor your credit score for free, including through your current credit card issuer or bank or through Experian.
Don’t Close Your Cards
Once you’ve paid off a card, it can be really satisfying to cut it up! But don’t close your account. Keeping your credit card account open but unused helps give you a long, established credit history, and can improve your overall credit utilization ratio. . Although sticking the credit card in a drawer has it benefits you may also be able to request a credit card freeze. You may be familiar with a credit card freeze since it used whenever you report your credit card lost or stolen. In this case, you may use a credit card freeze if you want the card open in your name but don’t want or need to use the credit card for purchases.
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Keep Old Credit Alive
The length of your credit history influences your credit score. Do not cancel old credit cards in good standing even if you rarely use them now. Keep these cards and use them every now and then to show some activity on your credit profile.
Cancelling old lines of credit also lowers your total credit limit and this hurts your credit utilization ratio.
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Establishing Credit Without A Credit Card
If you do not want to commit to a credit card, there are other methods for establishing and building your credit score. Contact your utilities or loan companies to find out if your payment history is being reported to the three credit reporting bureaus, Experian®, Equifax®, and TransUnion®. Consistent and on-time payments toward federal student loans can improve your credit score, which is important for future loans and credit card applications. Some rent and utility companies also report on your payment history, so it is worth understanding which ones do so you can avoid late payments that could negatively impact your score.
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Limit Loan Applications To A Short Time Period
Lots of hard inquiries in a short time could be an indication to lenders that you’re searching for lines of credit you won’t be able to pay. Smart borrowers, though, will apply for a few loans of the same type to compare rates. For that reason, credit scorers tend to treat multiple hard inquiries of the same loan type made around the same time as one, so submit applications within a short time frame. That will prevent your credit score from suffering.
Pay Your Bills On Time
The first step to improving your credit score is to pay your credit card balances on time all of the time. Payment history is the most important factor for ranking your score. Late payments register on your credit as negative information. The later the payment is, the more damage you can expect to your credit score.
Even if you have missed paying your bills on time in the past, the only way to revive your score is to start making payments before they are due. Automate your bill payments so you do not forget!
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Pay Down Revolving Account Balances
Even if you’re not behind on your bills, having a high balance on revolving credit accounts can lead to a high and hurt your scores. Revolving accounts include credit cards and lines of credit, and maintaining a low balance on them relative to their credit limits can help you improve your scores. Those with the highest credit scores tend to keep their credit utilization ratio in the low single digits.
What Is The Average Credit Score For Young Adults
There are two main models to score your credit: FICO and VantageScore. Under both models, the highest credit score you can get is 850. But, as a beginner building credit, no one expects you to have a perfect credit score!
According to Value Penguin, the average credit score for people aged 18-23 is 674. This would be considered a Good credit score on the FICO model:
- 800 to 850 Exceptional
- 580 to 669 Fair
- 300 to 579 Very Poor
If youve never opened a line of credit and your starting score falls in the Fair or Very Poor range, speak with a financial professional. There could be an error on your credit report or you might be a victim of .
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What To Do If Youve Been A Victim Of Credit Fraud
If youve been a victim of identity impersonation or credit fraud, your credit score might have taken a hit. Improving your credit score in these situation involves taking many of the steps on this page.
When you check your credit file, keep an eye out for a Victim of impersonation notice. This marker is provided by Cifas, a not-for-profit fraud prevention service.
Cifas markers are put on credit files by lenders in cases where they believe there has been an attempt at fraud by people mis-using a loan applicants identity. Lenders are legally obliged to report such concerns.
Having a Cifas marker on your file serves as a warning to future lenders that youve been a victim, or are vulnerable to becoming a victim, of fraud.
The marker will stay on your file for 13 months.
The good news is that having a Cifas marker doesnt affect your credit score and doesnt stop you from taking out credit. But it may create problems if youre applying for credit that is processed automatically, such as store finance. This is because a lender would have to carry out a manual review of your file to understand why the marker has been added.
Find out more on the Cifas website
Tips For Using Credit Cards
- Pay off your statement balance in full by its due date: If you avoid carrying a balance past your cards statement due date, you can use a credit card without ever accumulating interest charges.
- Only use the card for things youd already buy anyway: Never make unnecessary purchases just for the sake of building credit or chasing rewards. Instead, try using your card for necessities, like groceries or gas, and then pay off those purchases immediately.
- Dont worry about how often you use the card: As far as your payment history is concerned, it doesnt matter if you use your card once every few months or every day your credit scores can improve either way . Just be sure to use your card enough to keep it active.
- Keep your debt to limit ratio low: The ratio of your combined credit balances to your combined credit limits is known as your . A high credit utilization ratio can impact your credit scores in a negative way.
- Avoid applying for too many cards in too short a time: When you apply for a credit card, the issuer will conduct a credit check known as a hard inquiry. This may have an adverse impact on your credit scores. Packing too many hard inquiries into a short period of time might cause more serious damage to your credit scores. Even if your scores are still adequate, too many hard inquiries might potentially prevent you from being approved for some new credit cards if the issuers are inquiry sensitive.
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Keep Unused Accounts Open
At some point, you may have credit accounts with no balance that you arent actively using. And you may think its a good idea to close those accounts. But its not at least not when it comes to building your credit.
Why? Because keeping those accounts open will help your credit history continue to grow. And, as we mentioned earlier, a long credit history positively contributes to your overall credit score.
Just remember: there is a difference between keeping them open and actually using them. If you find yourself getting tempted by the bank offering new cards or increased credit limits, it might be better to just close the account. They can be costly if not managed correctly.
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Build Credit With A Credit Card
It’s not impossible to get approved for a store or traditional credit card that doesn’t require a deposit with no credit history. Store cards tend to be easier to get approved for and can help you begin building credit until your score is high enough to qualify you for a regular credit card. If you’re opting for a traditional credit card, it’s best to focus on student credit cards and those geared to those without credit. A few options that may cross your path include:
Get Id Theft Coverage Before You Need It
These tips can get you on the right track to making payments on time, which can help you plan for your future and work towards your dreams! While youre taking on these tasks, remember to reach out to your American Family Insurance agent and request a quote on identity theft coverage. Youll have more peace of mind knowing youll have the right support when you need it most.
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Why Is It Important To Build Good Credit
Good credit plays a vital role in your financial life. Most people think of good credit for obvious reasons like getting a credit card, car loan or mortgage. But credit can play a role in less obvious things like renting a car, apartment or home getting approved for a cell phone contract, and perhaps even getting a job.
When you apply for a loan or lease, the lender wants to see a credit reference to see if youll be able to responsibly manage the money they lend you by paying them back on time. Some employers check credit references too, especially when the job youre applying for involves handling money or dealing with confidential financial information.
The most common type of credit reference is a credit report from one of the three major credit bureaus TransUnion, Equifax and Experian. Your credit report includes information about your past and existing credit accounts. It outlines how much you owe, how long youve been using credit, and whether you consistently make on-time payments.
Your credit score, on the other hand, is like a grade thats given to your credit report.