Increase Your Credit Score 100+ Points
As a 20-something living in our modern world, a credit score is your password to unlock all sorts of financial opportunities for you. Your credit score will help you get a car loan, approved for a new apartment, and to buy that killer rental property with low interest! This post is going to detail ways to improve your credit score that you can do easily.
What is a credit score?
A credit score is a number that ranges anywhere from 300-850. This number is used by car companies, banks, government agencies and more. These companies use this number to determine the probability that you will actually pay back the money you owe them.
Banks and other money lenders want their money back. They aren’t in the financial sector to lose their money. This is why people with less of a chance of paying back their loans are going to have a higher interest rate. Think of your credit score as a level of trust a bank has in your ability to pay back your loan entirely.
There are 5 ranks you can receive for your credit score. They range from bad to excellent and you really want to see yourself in at least the top 2 if you want low-interest rates and a nice apartment.
Why is your credit score important?
Loans from the banks are a necessary part of life for the majority of people. Chances are you’re going to need a loan sometime in the future for a new car, or a home. Having a good credit score can drastically improve your life because companies are going to be willing to give you a lower interest rate which can give you more money to spend on things you want.
Where can you go to see your credit score?
I’m a cheap 20-something, I don’t want to waste money on anything I can find somewhere for free. This is why I will always recommend Credit Karma. Credit Karma is now available in Canada which is something I waited a long time for.
You’ll enter your basic information into the website and Credit Karma is going to calculate an approximate number based off all your financial information. This is going to be whats called a soft inquiry meaning that it will not have an effect on your overall credit score. If you go apply for a loan there is going to be a hard inquiry on your account which will affect your score.
how is your credit score calculated?
Your credit score is made up of 5 categories
- Payment History
- Total Amounts Owed
- Length of Credit History
- New Credit
- Types of Credit
1. Payment history
Payment history is going to be one of the most straightforward of the bunch. This refers to how much money you have managed to pay toward the credit you received since the day you turned 18.
It’s going to take into account your entire payment history. This will include the ratio of on-time to late/missed payments, any collections that are against you for unpaid credit, as well as liens, bankruptcies, foreclosures, etc.
2. total amounts owed
Total amounts owed takes into account your total amount of money owed out to lenders as well as your credit utilization.
Credit utilization is going to indicate to a lender whether or not you may have trouble making more than just your minimum payment. The more credit you use on a credit card or line of credit the higher your utilization is going to be.
For example, If you had a credit card with a $1000 limit and you had $975 of charges your credit utilization is going to be high which is negative in the eyes of lenders. This means your credit utilization would be at 97.5%.
3. Length of credit history
The longer you’ve proved you’re able to make at least your minimum payment the better your score is going to be. Obviously, this percentage of the credit score is going to be higher for someone who is 50 years old and has been using credit for the last 30 years than it will be for someone in their 20s who is just starting out.
4. new credit
Every time you apply for new credit (car loans, credit cards, mortgages) there is going to be a hard inquiry put on your credit history. These hard inquiries are going to going to bring down your credit score slightly every time they happen.
5. types of credit used
Having a vast array of different types of credit is going to give you a boost in your score. Lenders want to know that you are borrowing responsibly and not just wracking up 8 different credit cards all at once. However, it is not a good idea to open any kind of credit account if you do not plan to ever use it as this can hurt your score as well.
tips to improve your credit score!
So now for the fun part, all of the ways you can increase your score! Yay!
Pay down (not off) balances.
First, pay down as much of your balances as you can. I saw pay down instead of payoff because paying it off completely will bring your utilization to 0% and won’t be a good factor for your credit score. If it’s a $900 balance on a $1000 limit try to pay off at least $600 quickly to bring utilization back to 30% or lower.
Pay by the “report date”.
Oftentimes your balances aren’t reported on your pay by date. This means that you should pay your minimum payment by the “report date” listed on your credit score. This way the credit bureau will see a lower balance!
Decrease your utilization!
There are two ways to do this; however, I only suggest the second.
Firstly, you could call your bank and increase your credit limit. For example, If you had a $1000 limit and increased it to $5000 with a $900 balance your utilization would drop from 90% to 18%. However, this is often seen by young people as having “more money”. Let’s remember you’re borrowing this money, it is not yours. You have to pay it back! The second option to decrease utilization is to pay off your balance. Bringing your balance down below 30% is going to take time. It will be worth it. In addition, it will teach you not to let it get that high in the future.
Keep Unused Accounts Open.
Don’t close them just because you have a 0 balance. Having an older credit card is going to increase your credit history and therefore your credit score. Put a very small charge once in a while on these cards and always pay the balance down without a problem.
Avoid hard Inquiries.
It is never a good idea to go out and apply for 10 credit items at once. Please, never do this. It will hurt your chances of even getting one of the applied for items.
Use a secured card to bring up your score.
If you have really horrible credit your only option may be a secured credit card. A secured card is given out by a bank with you paying an amount of money up front. This money is usually the same as the credit limit amount on the card. The lender is going to use this money to pay off your balance in the chance that you default.
Secured cards are a great way to increase your score quickly if you have really horrendous credit.
Try not to move too much.
As a 20-something, you’re going to move around a lot trying to find the perfect apartment or house. This is something most people don’t think about when it comes to their credit score. Lenders are going to see this as being untrustworthy. Why? Because they’ll assume that you were unable to pay your rent and were evicted.
I really hope you’ve learned something about the importance of your credit! Thank you so much for reading and supporting NotQuiteAnAdult!
Please comment below or email me with any tips you think I missed, or any success stories you have using the tips outlined. I would absolutely love to hear them.
Thank you so much for reading.