If you've got bad credit, you may have found out the hard way that it can have major consequences in many areas of your financial life, such as getting approved for a mortgage, being stuck with sky-high interest rates, and even getting the apartment you have your eye on.
Your only option is to get your finances in gear and improve your credit score. However, boosting a credit score isn't something that's going to happen overnight. It takes making the right moves, and staying consistent with your improved financial behavior.
Here are 5 easy steps you can take to nudge your credit score in the right direction.
1. Get a Copy of Your Credit Report
To improve your credit score, you should first find out exactly what your score is, and the factors that have affected the score. The best way to start is by getting a copy of your credit report. This report will list all of your accounts that are hurting or helping your overall score.
Federal law gives you the right to look at your own credit report, and to get a copy for free once per year from each of the three major credit bureaus. You can access this report from AnnualCreditReport.com.
Looking over this report will also give you the chance to identify any errors that have a negative impact on your credit score. You have the right to have these errors removed by writing in to the credit bureau, or even to the creditor that listed this erroneous account on your report. Even the smallest error can have a big impact on your overall score.
2. Get a Handle on Your Credit Card Balances
One of the first things you need to do to improve your credit score is to get a handle on your credit card debt. Among all the major factors that affect your credit rating is how much revolving credit you have, compared to how much you actually use. The smaller the percentage that you use, the better for your credit score.
To improve your credit score, try to keep your debt-to-credit ratio under 30 percent. Don't max out your credit cards. Just because you're approved for a maximum of $5,000, that doesn't mean you should get anywhere close to that amount. Even if you pay your credit card balances in full and on time every month, the actual balance will have an impact on your credit score.
3. Leave a Little Old (Good) Debt on Your Credit Report
This might sound counterintuitive, but it can actually be helpful to leave some old debt on your credit report. Many people scramble trying to completely eliminate all debt, assuming that it is all bad. The second they pay off their homes, they're immediately on the phone trying to get their previous mortgage wiped out from their credit report. While many negative items might be bad for your credit score, good debt - the kind that was actually handled effectively and paid on time and in full - is actually good for your credit. The longer your history of having good credit, the better it is for your score.
To improve your credit score, leave your good old debt alone, and let it linger as long as possible. Compare this with getting straight A's all throughout high school - you don't want information like this to be wiped off your record.
4. Make Sure You Pay Your Bills on Time Every Month
This should be a no-brainer, but it's one of the biggest mistakes that people with bad credit make on a regular basis. Not making payments in pull and on time every month is probably one of the worst things you can do that probably put you into bad credit in the first place. This behavior needs to be reversed. Make it a point of paying all your bills - utility bills, car payments, mortgage payments, etc. - on time, every time. Even one delinquent payment can hurt your credit.
5. Pay Your Bills Twice a Month
If you're the type to charge close to your credit limit every month - even if you pay it in full - it could have a negative consequence on your credit score. Your credit score is very sensitive to how much you charge versus what your credit limits are.
Rather than paying your bills just once a month, pay them in installments - once before the statement's closing date, and once after. Getting too close to your credit limit can drop your score by 50 points or more, so try to avoid this as much as you can.
Little steps can help you significantly improve your credit score in the long run, which will afford you the benefit of lower interest rates, and better chances of getting approved for various loans.
To simplify matters, use an online tool at Mint.com to help you take control of your finances and improve your credit rating. You'll be able to see your free credit score along with your other accounts to help provide a whole picture of your finances - with no credit card required!