Achieving your financial goals is dependent on many factors, a critical one being your credit score. A credit score is a number that determines a person’s creditworthiness when they want to take out a loan, and it’s based on a variety of factors such as payment history, credit history, and amounts owed. The higher the score, the better a borrower looks to a lender as someone who will responsibly pay back a loan.

While there are many credit-scoring systems out there, the FICO (Fair Isaac Corporation) credit score is most used. An estimated 90% of lenders check a borrower’s FICO score, so your credit is bound to impact your life at one point or another.

FICO ranks credits scores as:

• Excellent: 781-850
• Good: 661-780
• Fair: 601-660
• Poor: 500-600
• Very Poor: 300-499

The good news is Americans have an average credit score of 711, an all-time high, but younger generations often trend lower as they start to build credit and incur debts. And it’s critical to maintain good credit as it could mean the difference between being approved or denied for a mortgage, an auto loan, or a personal loan. And if approved, your credit score can directly impact your interest rate or any fees associated with your loan.

So whether you want to raise your credit score or maintain a good one, here are some best practices to get your credit in tip-top shape.

1. Check Your Credit Score Regularly

Checking your credit score regularly is a great way to help track your progress. A common misconception is checking your credit score too often can lower your score, but that is incorrect. The reality is you can check your credit score as often as you like, but it’s important to remember that raising your score doesn’t happen overnight. Set a reminder for yourself to check it monthly or quarterly, or have a regular report sent to your email using a free online credit monitoring service.

2. Pay Your Bills on Time (and in Full)

One of the best ways to maintain good credit is to pay your bills on time, and preferably in full if you can. Just one late payment can negatively affect your score, so take the time to set up tools like automatic payments or online Bill Pay to ensure you never miss a payment. After a few months of paying on time, you should see a noticeable increase in your credit score. If you do miss a payment, don’t be afraid to call your creditors to see if they’ll work with you.

3. Make Monthly Micropayments

A common strategy to increase a credit score is to make multiple smaller payments (also called micropayments) to the same credit card each month. This helps keep your credit card balance, as well as your credit utilization (or the portion of your available credit you use) low. The latter is especially significant when moving the needle on your credit score in a positive direction.

4. Pay Down Your Debt

People with poor or very poor credit scores likely have issues with budgeting, saving, overspending, and making payments on time. For those folks, taking the time to make positive changes in those areas will help them pay down debt {https://www.unionsavings.com/futuretrack/blog/i-cant-believe-i-never-learned-how-to-pay-down-credit-card-debt-financial-literacy-month-2019} and increase their scores. To lower your credit utilization, start by strategically paying off cards with the lowest balances and create a plan to tackle larger debts. When you pay off a card, remember not to close the account, which can actually hurt your score and increase your credit utilization.

5. Build Your Credit Responsibly

Whether you’re a young adult or simply have been avoiding using credit cards, a way to increase your credit score is to build a credit history. While opening a credit card or taking out a car loan may seem counterproductive, you can’t have a credit score without any evidence of establishing credit. The key is to do this responsibly. Do the research and find a credit card that works best for you and your spending habits, and use it with the intention of paying it off each month. While store cards notoriously have higher interest rates, if you shop somewhere regularly and know you can pay it off each month, consider opening an account

6. Raise Your Credit Limit

Another way to keep your credit utilization low is to raise your credit limit on your credit cards. If your limit goes up, your credit utilization ratio drops, which can help your score. However, this step is only recommended for people in good standing or who have implemented healthy payment habits for some time. If you currently have issues with overspending or missing payments, this should not be a step you take right away when wanting to raise your score. Instead, start by paying down your debt and making positive spending changes first.

7. Set Up Fraud & Spending Alerts

Fraudulent spending can not only affect you financially, but the impacts can negatively affect your credit score too. Don’t forget to set up fraud alerts on your debit or credit cards and check your transactions and balances frequently to stay on top of any questionable purchases. The sooner you catch something, the sooner you can have an issue resolved. If others have access to your cards, such as a teenager or college student, consider also setting up spending limits and alerts to prevent large or irresponsible purchases.

8. Work With a Credit Counselor

Still not sure where to start? You may want to consider working with a credit counselor or a financial adviser. This may be a critical step for those in especially poor standing or with a lot of debts, as a professional can offer personalized advice to help you consolidate debts, budget appropriately, and take actionable steps toward improving your credit.

Conclusion

As you can see, your credit score plays a huge role in your financial future. Taking steps to maintain good credit or build it back up after a few missteps is a critical part of your financial journey. By implementing just a few of these strategies, you’ll find yourself in better credit standing in no time.

Need help getting back on financial track? Contact our FutureTrack team today