Paying your bills on time, spending money responsibly — these are important financial habits that can increase your credit score. Whether you’ve struggled in the past with money or had a few financial fumbles, building and maintaining your credit score is vital to being approved for loans and the best credit cards.
1. They regularly check their credit score and credit report.
To improve your credit score, you first need to know what it is. Your score will fall between 300 and 850. The higher it is, the more likely you’ll qualify for perks like competitive loan rates and credit cards.
Additionally, you’ll want to review your credit report at least once a year using services like AnnualCreditReport.com and GOFreeCredit.com. Your credit report will show you credit and loan providers you work with, the amount you owe and your payment history.
If you find errors on your credit report or spot a fraudulent account, contact your credit reporting agency and creditor. Common credit report errors include incorrect account details, like the wrong home address or credit limit on a card.
To dispute an error on your credit report, the Consumer Financial Protection Bureau recommends writing a letter to the credit reporting company and identifying each mistake on your report.
2. They have a system in place to pay bills on time.
Credit providers determine your credit score based on several factors, like the length of your credit history and the type of credit you have. Arguably, the most important factor in your credit score is your payment history, which accounts for 35 percent of your FICO score.
If you’re constantly forgetting to pay bills on time, develop a system to help you stay on top of payment due dates. Set up automatic bill pay, vow to pay each bill as soon as they hit your mailbox or designate specific times of the month you sit down and handle your finances. You can even set reminders on your phone for when your monthly and annual payments are due. Find a strategy that works for you so you can raise your credit score in 2017.
3. They maintain a budget and track expenses.
Sixty percent of U.S. adults don’t maintain a budget or track spending, according to the 2016 Consumer Financial Literary Survey from the National Foundation for Credit Counseling. But knowing where your money is going each month can boost your credit score. Why? Because if you’re monitoring your budget and spending, you’re less likely to miss a payment or find yourself short when a bill comes in.
Turn to personal finance software like Mint and LearnVest. These tools put all your financial accounts in one place so you can more easily track your money. You can also find free financial spreadsheets online or keep a notepad handy to write down purchases.
Having your budget and finances in one place allows you to more easily create strategies to pay down debt and save for future purchases or retirement. You can calculate how long repayment will take and see how you can allocate more resources to savings or high-interest debts.
4. They minimize use of available credit.
If you have a credit card with a high limit on it, don’t rack up purchases on it just yet. Although you should have active credit accounts in your credit report, don’t get caught with high balances. Credit bureaus look at what’s called your credit utilization ratio — the ratio of your credit card balance to credit limit — to determine how responsible you are with money.
A credit utilization ratio of 30 percent or less tells credit bureaus you’re spending within your means. So, if you have credit cards with a combined total limit of $10,000, avoid charging more than $3,000 at any given time. If your credit utilization ratio is over 30 percent, prioritize paying down your credit card debts to increase your amount of available credit. You’ll not only reduce how much you spend on interest every month but increase your credit score.
5. They think twice before applying for new credit.
You might consider signing up for a new store credit card to take advantage of a discount or special offer. After all, you can cancel the card later. But, if you open multiple credit accounts in a short period of time, your score can take a hit. That’s because credit bureaus are wary of consumers who suddenly have too much new credit in their name.
Similarly, when you apply for a new line of credit, lenders perform what’s called a hardy inquiry on your credit report. Hard inquiries negatively impact your credit score and can remain on your report for several years.
So, unless you really need a new line of credit, think twice before applying for a new credit card or loan — especially if you’re interested in building credit.
6. They protect themselves from identity theft.
While it’s hard to totally protect yourself from identity theft and fraud, you can mitigate the damage. The first step is checking your credit report for any discrepancies, including credit inquiries you didn’t initiate.
If you’re really concerned about identity theft, sign up for ongoing credit monitoring, such as from myFICO.com. These types of services monitor your report and alert you of any changes made.
And if you suspect your credit information is at risk, contact your credit providers and credit reporting agencies immediately. The hassle of having to replace your credit card is better than having to repair your credit score after your identity has been stolen.