With high inflation rates AND relatively high interest for loans, it is more important than ever to have good credit. A high credit score (typically anything above 670) can get you access to better loans (with better terms), make it easier to take out a loan or open a bank account, or even improve your ability to rent an apartment.

Clearly, improving your credit score is a proactive step towards financial stability and security. But, for many, increasing a credit score can seem difficult and random. Does opening a new account help or hurt? Is it better to have multiple credit cards or only one or two?

In truth, everyone’s situation is different, and it is always best to do your research, including talking to a trusted financial advisor about how to increase your credit score. However, certain advice typically applies to everyone. This includes the following five tips:

Pay Those Bills

It is hard to overemphasize the importance of paying your bills on time. Credit scores are based on a number of factors, but the largest portion (35%) is based on payment history. To pay your bills on time, I suggest setting up automatic bill payment through your bank account. This ensures that you don’t miss any due dates and helps maintain a consistent payment history, which is crucial for a high credit score. It is also essential to live within your means so you have funds available to cover your bills.

Be Careful with Credit Cards

Although taking out loans and opening credit cards can increase your credit score, it can also damage it. If you develop a long history of making timely payments and keeping a low balance (or preferably NO balance) on your credit cards, that’s a good thing and it will help to improve your credit score. On the other hand, if you max out your credit cards, miss payments, or have a high utilization rate, it can significantly lower your credit score. It’s crucial to be diligent in managing your credit cards by keeping your balances low, paying on time, and not opening too many accounts at once.

Monitor Your Credit Score

It’s important to keep tabs occasionally on your credit score to track your progress. Regularly monitoring your credit report can help you catch errors or unauthorized activities early, allowing you to address them promptly. You can access your credit report for free once a year from each of the three major credit bureaus (accessing the report once annually will not negatively affect your credit score). Reviewing your report enables you to identify any discrepancies and take necessary actions to maintain or improve your credit score.

Avoid Scams

Nothing can tank your credit score quicker than a financial scam or database hack and, unfortunately, this type of activity is becoming increasingly common. Be cautious of scams and protect information. Regularly monitor your accounts and credit report to spot any suspicious activity quickly. If you notice any unauthorized charges or unfamiliar accounts, take immediate action to dispute them. Consider placing a fraud alert on your credit report for added security. By staying vigilant and proactive in safeguarding your financial information, you can help prevent fraudulent actions that could harm your credit score and overall financial well-being.

Know Yourself

Above all, it is important to develop a good understanding of yourself and your financial tendencies. If you often overspend, consider opening a secured credit card that limits your spending to the amount you deposit. If you struggle with managing multiple credit cards, it may be beneficial to stick to just one or two to simplify your finances. Understanding your financial habits and limitations is key to improving and maintaining a good credit score. By being aware of your tendencies and taking steps to address any weaknesses, you can set yourself up for success in managing your credit responsibly and ultimately improving your financial well-being.

Understanding the factors affecting your credit score and taking proactive steps to manage your finances are essential for creating financial stability. By taking mindful, consistent actions, you can work towards improving your credit score. Taking these steps can lead to better loan terms, increased financial security, and greater peace of mind in your overall financial well-being.

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