Having a good or excellent credit score seems far off for a lot of people. But, if you think you will have bad credit forever, you’re wrong. Yes, you might’ve made late payments on your bills, or racked up credit card debt when you were young – but there are ways to improve the situation. It’s time to stop making money mistakes and remedy your credit score.
The first thing you should do is take a long hard look at your credit report and get familiar with what’s dragging your score down. To find out your credit rating, use AnnualCreditReport.com, a government service that allows you to access your credit score for free, once per year. Additionally, you can use CreditSesame for free to see your score more often. CreditSesame found users with scores below 500, make certain errors more often than those with an excellent rating. Here are 3 mistakes that you should avoid:
1. Using Too Much of Your Available Credit
If your credit cards are maxed out or are close to the limit this can send a bad message to lenders. In fact, the amount of available credit you have (or don’t have) has a big impact on your credit score. This is called credit-utilization ratio, and the lower it is, the lower your score will be.
According to CreditSesame, users with credit scores below 500, were using 73% of their credit, whereas those with scores of 750 or higher used just 9%.
The Solution: Don’t use your credit card to expand your monthly budget. It’s a bad move to use your credit card for money you don’t have, and your credit score will reflect this. Instead, don’t reach for your credit card as often and try to pay off your balance in full every month.
To make a little extra room in your monthly budget, cut back on areas of your spending, and boost your income with a side-gig. This way, you won’t need to rely on your credit card and slowly your credit-utilization ratio will decrease.