Woman checking her credit report on a paper copy and on computer screen. Concept:How to improve your credit score
Sean Salas
By: seansalas
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How to Improve Your Credit Score

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You may not think about how to improve your credit score until you attempt to lease a car or apply for a loan or credit card. Then, you may wonder, “Why do I need a good credit score?” If your credit score is low, lenders won’t let you borrow money or offer you lower terms and rates.

In learning how to improve your credit score, you might be amazed to know that a good credit score can save you hundreds or thousands of dollars for the typical auto loan or credit card. For a business owner, a good credit score can add up to tens of thousands of dollars in interest rate savings on long term loans.

Here’s something else to consider. A personal credit score can be just as important as a business credit score when applying for a business loan. What if you could boost your personal credit score by 60 points in 60 days? Wouldn’t you be all in and ready to take steps to make positive changes in your credit score? To get started, here is the perceived risk by lenders for different credit score bands to underwrite an unsecured business loan:

15 Tips on How to Improve Your Credit Score by 60 Points in 60 Days

Tip #1: Report Your Rent

Do you think the only way to build credit history is by accessing credit?  Wrong! If you rent property, there’s a very good chance that your property manager doesn’t report your rent to the credit bureaus. In our experience, when Camino Financial members begin to report rent, their credit scores swing up above 50 points in a few weeks!!

The trick when learning how to improve your credit score is to be proactive when reporting your rent directly to the credit bureaus. The cheapest way to do so is to reach out to your property manager and credit bureaus. The fastest way is to work with rent reporting agencies that already work with the credit bureaus. Check out this link to Experian’s website with references on how you can report your rent.

Tip #2: Get a Secured Credit Card

A secured credit card is not the same thing as a prepaid debit card. You open a secure credit card with a bank or credit card provider that requires a refundable security deposit usually starting at $200. Annualized Percentage Rates (APRs) vary with these types of credit cards ranging from 9.99% to 18.95%. This is an effective way to build credit especially when you don’t have a credit history or bad credit. For those who have a credit history, you may qualify for an unsecured credit card that does not require an initial deposit.

See this list to discover the 10 best business cards you can use to build your credit score.

Here’s an important trick to build credit via a credit card: don’t open a ton of lines at the same time. It’s normal to be gung-ho and open a ton of credit card accounts. That’s not a good idea!! The credit bureaus will penalize your credit score if you request credit from too many creditors within a short period of time. Please take our advice. Start with one credit card and build from there.

Tip #3: Purchase Electronics with Installment Payments

Purchase an electronic device (or another hard good) on an installment basis. Camino Financial doesn’t recommend this for people who already have a credit history, but it can be a great way to build credit when you don’t have a history.

Clarification: Rather than open a credit card at the point of purchase, you can pay off purchased electronics in installment payments. Purchasing on a credit card can hurt your credit if it means you need to exceed 30% of the credit limit (see Tip #8). However, paying an installment loan builds your credit. So make sure that whatever you purchase has installment payments, and verify that the retailer reports these payments to the credit bureau. See Tip #6 below on how to get a copy of your credit report.

Tip #4: Pay Your Bills on Time

This important tip on how to improve your credit score prevents your personal credit score from taking a nosedive. Bottom line: make sure you make timely payments to creditors. Lenders know you’re creditworthy and reliable when you pay your debts on time. They don’t want to see notations on your credit report that you fail to pay utilities, your cell phone bill, rent, and other financial obligations. Consider setting up automatic payments or getting smartphone alerts so you always pay your bills on time. See these other recommendations on how to pay off debt quickly.

Tip #5: Consolidate Credit Card Debt into an Installment Loan

If you already have credit cards and exceed your 30% credit card limit capacity, then you need to evaluate options to consolidate credit card debt into a single installment loan.

Finding lenders comfortable with refinancing your credit card debt is easier said than done, but here are a few options below:

Tip #6: Request Your Credit Report Regularly

You can request a free credit report from one of the 3 main credit bureaus, use Credit Karma, or have a representative from your bank request the report. By getting a credit summary, you’re able to spot inaccurate information and take steps to correct those discrepancies. Plus, after implementing these tips on how to improve your credit score, you can see how those changes made a positive impact.

Tip #7: Keep Credit Trade Lines Open As Long As Possible

The credit bureaus reward consumers for having credit lines available over a long period of time. This demonstrates to them that you have a track record of maintaining a long-lasting relationship with a creditor, rather than accumulate delinquencies where you’re forced to close accounts with creditors. Credit bureaus use trade lines to calculate a borrower’s credit score by reviewing credit limits, length of time credit was extended, and the payment history. Your payment status indicates whether you make timely payments.

Tip #8: Never Exceed 30% of Credit Capacity

As a rule of thumb, you should never exceed 30% of the credit card limit. The moment you start exceeding this credit limit, having a credit card will actually hurt your credit rather than help build it. When you exceed 30%, it’s a red flag to the credit bureaus that you don’t have a healthy credit utilization ratio (debt owed relative to credit limits). Camino Financial recommends staying within 5% to 30% of your credit card limit. This helps you build credit and get your score up. In some instances, your credit score gets a boost very quickly when it’s the first time you’ve established credit history.

Tip #9: Pay Off Credit Card Balances Each Month

Now that you have a credit card, you may think: it’s time to buy stuff on credit. Not necessarily.  You should use your credit card to make purchases but always pay off the balance at the end of the month to build credit. Not only do you avoid paying interest, but you establish a positive payment history demonstrating that you know how to manage debt. Here you can learn how to make the best use of your credit card to increase your credit score.

Tip #10: Limit the Number of Credit Applications You Complete

Every time you fill out an application for credit, creditors make requests call hard inquiries or hard pulls. These credit checks affect your credit score and remain on your report for two years. On average, each hard inquiry can reduce your credit score by 5-10 points. Therefore, too many inquiries cause your credit score to plummet so you could pay higher interest rates for loans and credit cards. In a worst-case scenario, a lender could reject your request for credit. Remember: when you apply for a loan with Camino Financial, we do a soft pull of your credit that doesn’t affect your credit score at all.

Tip #11: Open a Checking Account

If you’ve never established credit, open a checking or savings account with a local bank. Doing so won’t build credit but it does put you in a better position with the financial institution to get a loan or apply for a credit card. They can see that you know how to handle money when you make deposits and withdrawals without overdrawing your accounts. Once you get a loan and start repaying debt, you begin establishing a credit history immediately. Read this article to know the best business checking accounts available in the market.

Tip #12: Make Sure Unpaid Debts Aren’t Sent to a Collection Agency

Work closely with lenders when you have a financial crisis and can’t make payments. When you’re upfront about your situation, most likely they will work with you to set up a different payment plan. It’s in their interest to do so because most collection agencies settle unpaid accounts by decreasing the debt.

Tip #13: Increase Your Income

A bigger income causes your debt-to-income ratio to decrease. This helps make a favorable impression on lenders when a borrower is about to receive a salary increase or a large bonus. Getting a raise may even put you in a position to apply for a larger loan amount.

Tip #14: Don’t Close Paid-Off Credit Cards

Don’t close a credit card account simply because you don’t use the card. Even if you aren’t using credit on unused cards, the available credit counts toward lowering your credit utilization ratio mentioned in Tip #8. So, as a strategy on how to improve your credit score, keep those accounts open!

Tip #15: Set Up Emergency Funding

Having a nest egg to fall back on is a good idea. Instead of maxing out your credit cards when unforeseen expenses crop up, you can dip into savings. Start building up this account as soon as possible. Even if you can only contribute $25-$50 a month, that’s a place to start.

Camino Financial Small Business Loans Help You Build Credit

This article on how to improve your credit score quickly not only opens doors to borrow money but gives you hope for your financial future. Did you know Camino Financial small business loans build credit? Camino Financial doesn’t require collateral and we have limited restrictions on fund usage. We also are more flexible and have fewer requirements than traditional banks. Read this brief summary for a more thorough explanation of how our loans work.

In addition to applying for a Camino Financial small business loan, you can follow the 15 easy tips above on how to improve your credit score. You’ll boost your credit score in record time and be closer to achieving your financial goals for you and your business.

 

 

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