April is financial literacy month, a time to learn how to take care of your finances. With lack of financial literacy resources taught in schools and tons of misinformation online most adults and young adults have to figure out financial concepts themselves. Here are five simple ways to improve your credit.
1) Understanding your credit
Your credit is examined in five sections including: open credit card utilization, percentage of on time payments, length of credit history, number of derogatory marks on your credit report and the amount of hard credit inquires. Every time you apply for a credit card, a loan, a house, or a car all of these things are processed and considered for approval or denial based off of your credit.
A lot of lenders will look at the age of your history and see how long your accounts have been open. Your credit history is very important. Canceling a card or closing an account decreases the average age of your credit accounts.
Websites like Credit Karma allow you to check and manage your credit score in depth and for free.
2) Credit Cards
The easiest way to maintain or build credit is by using a credit score responsibly. If you have bad to no credit you might qualify for a secured credit card which are backed by a cash deposit or a co-signer. If you have fair credit you might qualify for cards with a lower credit limit or lower rewards rates. If you have good to excellent credit you’ll qualify for maximum credit limits and the cards with the best reward programs.
Apply only for cards that you know you’re likely to get based on your credit score. Be mindful in knowing that every credit card application you apply for shaves points off of your score.
3) Reducing balances faster
Paying down your debt is one of the fastest ways to improve your credit. Paying your deadlines on time and paying more than the minimum balance towards your debt will have the biggest impact on your credit. If you pay your balance in full each month on or before the due date you won’t have to worry about paying interest. You only accrue interest when you carry a balance from one month to the next.
If you find yourself swimming in debt create a budget that includes your monthly income and expenses and see where you can cut costs. Then aim to pay off your most expensive debts, sort your credit card interests from highest to lowest then tackle your debt.
4) Knowing the impact of soft and hard inquiries
Hard inquiries normally occur when financial institutions such as a lender or credit card issuer checks your credit when making a lending decision. A hard inquiry could lower your score by a few points but be mindful of applying for a handful of credit cards at the same time. Multiple hard inquiries in a short period of time could consider you a high risk customer and can lower your score.
A soft inquiry typically occurs when a person or company checks your credit as a part of a background check. Unlike hard inquiries, soft inquiries won’t affect your credit score. Hard inquiries normally occur when you apply for a mortgage loan, apartment rental application, auto loans, credit card applications and student loans. Common soft inquiries often occur when you check your credit score on websites, check “pre-qualified” credit card offers or insurance quotes and employment verification.
5) Practicing Patience
Improving your credit may take a while but overtime as your credit history grows and old inquiries fall off you will have a stable consistency that will impact your score.
Once you start taking proper care of your credit you’ll be able to sit back and relax and enjoy the benefits of great credit for years to come.