PAYMENT HISTORY (35%)
Here comes no surprise: Your payment history is the most heavily weighed factor in your credit score. Lenders look at this first because it’s one of the best ways to verify whether or not you’re a good risk to take on. If you’ve missed your fair share of payments in the past, your lender is going to think you’ll do the same to them. Make every payment on time, and they’ll be throwing money at you.
If you’ve gotten the best of yourself in the past and missed payments, never fear. Like I said before, your credit score isn’t stagnant and you can be in charge of moving it further up the totem pole. Here’s how to better your payment history in a few quick and easy steps.
1. Pay on Time, Every Time
No brainer, right? But let’s be honest, life can get in the way sometimes, and you can find yourself 3 days light on your electric bill. Not a huge deal, unless you’re looking to take out more debt in the future and need a good credit score.
To ensure you never miss a payment again, set alerts on your phone or sign up for automatic bill pay. Or be like me and download Prism, which is a bill tracking app that notifies you anytime a bill is available or coming due. I’ve been using it for YEARS, and yes, it has even saved super-organized me from making late payments a time or two (or 12).
2. Review Your Credit Report
Sometimes random bills get lost in the mail and you never know they exist. It happens. Reviewing your credit report periodically for these is important to making sure your credit is clean.
Every 4 months, download your credit report from one of the 3 credit bureaus (Experian, Equifax, and Transunion) and give it a good look-over. If you do find something, contact the lender and ask if they will remove it from your credit report if you pay it in full. Normally they’ll agree, and you’re credit will get a nice little bump.
DEBT UTILIZATION (30%)
Fancy words for an easy concept.
Debt utilization basically means how much of your credit that you’re actually using, and the lower it is, the better. For instance, let’s say you have a $5,000 limit on your credit card and use $1,000 on average. You’re debt utilization ratio is 20%, and this signifies to lenders that you are able to responsibly fund your lifestyle without maxing out your credit. If you find your debt utilization is on the higher end of the scale (think 70%+), use these tricks to bring it down to scale.
1. Rapidly Pay Off Debt
If you want to make a significant impact on your debt utilization ratio, you need to make a significant dent in your debt. This will increase the gap between what you owe and the amount of credit you have available and will therefore lower your ratio.
2. Increase Your Credit Limit
There’s only two ways to affect your debt utilization ratio: decrease your debt or increase your limit. If you’re looking to do the latter of these, the best way is to utilize your credit card. Call your credit card company and see if you can get your limit increased. This one step will help lower your ratio, but remember, only do this if you have the willpower not to spend up to that amount. If not, it’s not worth the small uptick in your credit score for the added debt.
LENGTH OF CREDIT HISTORY (15%)
The longer your credit history, the more information lenders have on how good of a credit risk you are. And this makes sense: Would you rather lend your money to someone who shows a good payment history for the past year or someone who has a good payment history for 10?
All your student loans, auto loans, mortgages, credit cards, store cards, utility payments, and rent payments play into your credit history. If you haven’t had much exposure to these, I would suggest opening a store or regular credit card (again, only if you have the self-control to do so). Start by just putting gas or groceries on it, pay it off every month, and that will be enough to start building a decent credit history.