By Emma Dylan
There’s no denying 2020 was a difficult year, and many are still dealing with financial troubles caused by the pandemic. The good news is that the United States is starting to get back to normal. Businesses are reopening, and many who were furloughed are getting back to work. Because of this, now is a good time to improve your finances and salvage your credit score.
If you’re ready to improve your credit score but don’t know exactly how, you’ve come to the right place. Here are seven tips to help you rebuild your credit score in 2021.
1. Be Strategic When Paying Down Debt
Many people acquired debt in 2020. Medical bills, layoffs, or credit card spending might’ve taken your debt to a new high. No matter how or when you got here, now it’s time to start addressing the problem. Of course, easier said than done, right? Paying down debt may seem difficult, but there are some simple strategies.
One way is to focus on the debt that will rack up the most money over time. Track down all of your debts, and organize them by interest rates. Then put any extra money you have into paying off the loan with the highest rate.
Keep paying your monthly minimums on the rest of your debts. But anytime you can spare some cash, use it to pay off the one with the high interest rate. Once it’s paid off, focus on paying down the debt with the next highest interest rate. This system will save you money in the long run since you’ll accrue less interest over time.
2. Get a Secured Credit Card
A secured credit card works similarly to a traditional credit card. You can make purchases, schedule payments, and build your credit score. So, what exactly is the difference? A secured credit card is backed by a cash deposit.
When you apply for a secured credit card, you put money down that’s equivalent to the card’s limit. For example, if you deposit $1,000, your credit limit will be $1,000. Because of this, people with poor credit, or no credit, are more likely to get approved for a secured card. As you try to salvage your credit score, consider opening a secured credit card.
Easy approval isn’t the only reason one can help when you’re struggling financially. Some have safety features that automatically use your deposit to pay off your purchases monthly. You can get on-time payments reported to the credit bureau without lifting a finger. Building credit has never been easier.
3. Pay Your Bills on Time
“Pay your bills on time,” doesn’t mean sometimes — it means all of the time. Your payment history has the biggest impact on your credit score. Meaning it should be your main focus when you’re trying to improve your score.
The problem with late payments, besides acquiring interest, is that they can stay on your credit report for seven years. Even one late payment has the power to hurt your score. So make sure you’re focusing on making your payments on time. If you can’t afford to, contact your creditor to ask if you can set up a payment plan.
4. Check Your Utilization Ratio
Your credit utilization ratio is the amount you owe divided by your credit limit and multiplied by 100. For example, if your credit limit is $3,000 and you currently owe $500, your credit utilization is 16.7%.
According to financial experts, your utilization ratio should remain below 30% of your limit. Since your credit utilization ratio makes up 30% of your credit score, it’s important to keep that number low. With that said, you don’t want your percentage to be zero. For your score to improve, creditors need to know you’re able to make payments over time.
Take a moment to check the credit utilization on your debt. If you find that your credit utilization ratio is high, work on making payments before using more credit.
5. Consider Becoming an Authorized User
Many credit card holders have the option to add an authorized user. The authorized user can make purchases, but isn’t ultimately responsible for the account. This can potentially benefit the authorized user.
The bank will often send reports to the credit bureaus for the account holder and authorized user. If the account holder is responsible, and pays their bills on time, the authorized user’s credit will rise. The opposite can also be true. If the primary cardholder doesn’t follow good money practices, the authorized user’s credit will probably fall.
Becoming an authorized user can really improve your credit score. Just make sure you choose a primary cardholder who’s responsible and in a position to help.
6. Review Your Credit Report
Your credit score is determined by your credit report, which is based on your overall credit activity. You should take a very close look at your credit report. It will provide you with an in-depth account of what’s hurting, and helping, your credit score.
For example, it’ll list the accounts you’ve opened, your payment history, and other pertinent information. This information can help you make decisions on which aspect of your financial situation you should focus on improving first.
When you get your credit report, you should also check for errors. There might be mistakes, or there might be evidence of fraud. For example, perhaps someone’s opened an account in your name. If something doesn’t seem correct, you should immediately report it.
7. Get Help From an App
Improving your credit score takes time, and it can be a challenging process. Instead of going at it alone, consider finding a partner in the digital world. There are many apps available to help you improve your credit.
For instance, Experian’s app offers services to help users monitor their credit. Through this app, users can report payments that aren’t always provided to the credit bureau, like cell phone payments. Some apps also offer daily updates. So check through reviews, and find the right app for you.
Keep in mind, your credit score won’t improve overnight. 2020 will have lasting impacts on people’s mental, physical, and fiscal health. However, by incorporating the tips above, you can start to move forward financially
