Tips to Improve Your Credit Score
Keeping up a solid credit history and good credit score is a bit like staying in shape – you have to work at it regularly to stay at the top of your game. If you wanted to run a marathon, you wouldn’t wait to start training until it was a month away. Similarly, you don’t want to neglect your credit until you’re about to apply for a major loan.
Instead, try to incorporate good credit habits into your regular financial routines. That way, if or when you need to apply for new credit, you should already be in a strong position. Below are eight habits to consider adopting to help raise your credit score.
1) Never Miss a Bill Due Date
Paying your bills on time is the cardinal rule of maintaining a good credit score. That’s because your payment history (meaning whether you’ve paid your past credit card and other loan bills on time or not) is typically one of the most important contributing factors to your credit score.
If you have trouble staying on top of bill dates, consider enrolling in autopay, registering for billing alerts, or creating a reminder system.
2) Keep Your Balances Low
If you have revolving lines of credit, such as credit cards or a home equity line of credit, try to make sure you only use a portion of the total credit available to you. One rule is to make sure your outstanding balance is never more than 30% of your credit limit, like staying at or below a $3,000 balance on a credit card with a $10,000 limit. This ratio is called your credit utilization, and it’s typically another important contributing factor to your credit score.
3) Think Twice Before Closing Old Cards
Another contributor to your credit score is the average age of your credit accounts. The longer the average age, the better for your credit (because it shows you have more experience managing debt and means lenders have a longer track record for you to evaluate). That’s why it may make sense to keep old credit cards open, even if you don’t actively use them anymore. However, closing a card could still be the right move if it charges an annual fee or if keeping it open creates a temptation to overspend.
4) Be Cautious About New Loan Applications
When you apply for a new credit card or loan, the issuer or lender will generally make a hard inquiry into your credit. These inquiries hurt your credit, though they typically only affect your credit score for a year (and stay on your credit report for only two years).
You can help reduce the negative impact of hard inquiries on your credit by thinking twice about opening new credit cards, avoiding hard inquiries if you’ll be applying for a major loan soon, and being efficient when rate shopping.
5) Consider a Well-Rounded Credit History
To reach a top-tier credit score, it can help to show that you have experience with a variety of types of credit – such as credit cards, auto loans, mortgages, and home equity loans – instead of only one type (such as only credit cards). This doesn’t mean you should borrow money that you don’t need. But if taking on a new type of loan makes sense within your broader financial plan, know that it might also benefit your credit over the long term.
6) Check Your Credit Report Regularly
You’re entitled by federal law to a free annual credit report from each of the three major credit reporting agencies: Equifax, Experian, and TransUnion. When you check your report, keep an eye out for anything amiss, such as incorrect account details, overlooked past-due accounts, and evidence of fraud or identity theft. Consider checking one report every four months to keep regular tabs on your credit.
7) Dispute Any Errors You Find
If you do ever find incorrect information on your credit report, try to get the information corrected by filing a formal dispute with the credit reporting agency and pursuing the issue with the relevant creditor. Although the process might take some legwork, it can be worth it to make sure your credit history provides a fair and accurate picture of you as a borrower.
8) Keep Your Overall Finances in Shape
It can be easier to stay fit when you lead a healthy lifestyle. Similarly, it can be easier to maintain a good credit score when you keep other areas of your finances on track. To adopt a healthy financial lifestyle, consider following a budget, avoid getting overstretched by debt, and making sure you have an adequate emergency fund.
Prioritizing Financial Wellness
We are currently faced with a financial epidemic: many employees are on unstable footing due to debt challenges and a lack of emergency savings; others abruptly find themselves responsible for both their aging parents and dependent children. There’s no doubt about it – many employees are financially stressed.
These financial burdens can have negative effects at home and in the workplace, impacting health, relationships, and productivity. As an employer, this should concern you – aside from the possible adverse bearing on your company’s bottom line, it’s also discouraging to know financial stress can have the power to derail top employees.
In fact, 45% of employees say financial matters cause them the most stress in their lives. We believe it’s essential to closely and honestly examine the financial wellness programs currently in place within your company – are they adequately addressing your employees’ needs? Are they producing the behavioral changes necessary to improve employee well-being? If they’re not, consider the following:
Problem: More than a quarter of employees are using credit cards to pay for monthly necessities because they can’t afford them otherwise – and it’s an issue across all income levels.
Suggested courses of action: Host a budgeting and debt management course to help employees understand where their money is coming from, as well as where it’s going. Teach employees how to monitor their credit scores, emphasizing the power of compound interest and how it can either work for or against them.
Problem: Among employees with student loans, a large percentage indicate these are having a moderate to significant impact on their ability to meet other financial goals.
Suggested courses of action: Provide resources to educate employees about student loans and possible payment plans. Offer opportunities to learn about college savings plans to help ease future student loan burdens. Implement a student loan repayment benefit as part of your overall benefits package.
Problem: 47% of employees have less than $50,000 saved for retirement.
Suggested courses of action: Participants must understand the importance of starting early, how to take advantage of the company match, and what kind of gap they face between what’s saved and their retirement-ready futures. Make sure you’re providing sufficient education about your company’s retirement plan, how to enroll, your recordkeeper and their website, and where they can go with any kind of financial questions.
The Shepherd Financial team specializes in customized financial wellness programming, so we’d love to have a conversation about how we can improve your employees’ well-being. Connect with us today at 844.975.4015 or shepfinteam@shepherdfin.com.
Source: pwc, Employee Financial Wellness Survey, 4.16