Despite being a rough year financially, the average credit score at the end of 2020 and beginning of 2021 is now 711, which is up from the average of 706 a year ago. While that’s great news for the general public, if you’re someone still struggling to boost your credit score, you might wonder why yours didn’t also go up in the previous year.
Your credit score depends on a few factors, and the amount of debt you have and your payment history are only two factors (albeit very important ones!). If you’re making 2021 the year you make your credit score soar, here are ten easy steps to take to reach your goal.
How to Increase Your Credit Score in 2021
1. Download a Credit Monitoring App
Your first step towards increasing your credit score rating is to first figure out what your credit score is! There are numerous free credit monitoring apps that allow you to track your score, receive updates bi-weekly, and even access other tools and tips that help you optimize your efforts. We suggest Float or Mint; Float is best for those who want to only focus on their credit score and Mint is better for those who want additional tools that help them budget and save.
2. Understand the Different Credit Scores
When you open a new credit card, take out a new loan, or miss a payment, the credit card company or financial entity responsible for the account reports that to (usually) all three of the major credit reporting agencies: Equifax, Experian, and TransUnion. Then, two major credit scoring models use this information to generate your credit score. Your Vantage score and your FICO score are what you’ll need to look at, and they vary in how they weight your score.
For example, the FICO score is calculated using the following method:
- Payment history: 35%
- Amount owed: 30%
- Length of credit history: 15%
- New credit opened: 10%
- Types of credit you have: 10%
Learn the difference between the two and track both of them to better optimize and increase your credit score.
3. Look for the Right Credit Card
If you’re just getting started building credit, we suggest looking for the right credit card. Even if you don’t need a credit card, having the account there is a great way to build your credit. For those with poor credit, we suggest looking at a secured credit card. With these types of cards, you’re approved automatically on the basis that you “secure” the card with a deposit (usually around $200). It’s a bit of an expense, but it can help you increase your score pretty quickly if you don’t currently have credit accounts open or if your score is too low to qualify for other cards.
4. Call to Lower Your Monthly Payments
Seeing as your payment history is such an important component of your credit rating, it’s important to ensure that you don’t miss payments. If you’re having trouble keeping up with your monthly payments, call and ask if it’s possible to lower the monthly payments. Even lowering them by $50 a month can help! This conversation is going to be a lot easier if you come prepared with information such as why you need to lower your payments and how long you’ve been a loyal customer with this particular company.
5. Lower Your Credit Utilization Rate
Credit utilization rate is how much you spend in relation to your overall credit limit. If your credit limit is $1,000 and you spend $500 on that card each month, then your credit utilization rate is $50. This ratio affects your credit score quite a bit, which means it’s a good idea to make sure you’re sticking to a credit utilization rate below at least 30%, but the lower the better. If you have trouble staying below 30% because your credit limit is low, then we suggest that you...
6. Ask for a Limit Increase
If you usually make on-time payments and have been a customer with that company for quite a while, it never hurts to call and request a credit limit increase! This is much better than applying for a new card as that can potentially lower your length of credit history (when a new account gets opened it’s counted as being 0 years old, which hurts your overall average). If you’re able to get a $1,000 increase, you’ll have more spending room in terms of keeping your utilization rate below that 30% mark.
7. Don’t Close Older Accounts
As mentioned above, the length of your credit history is a big factor affecting whether or not you can increase your score easily. If you have an old account that’s been open for ten years and you’re not using it, don’t close it out! It’s not hurting you by just sitting there; it’s actually helping you increase your credit score.
8. Get Added as an Authorized User
Having trouble starting out building credit or are struggling to improve poor credit? Ask to be added as an authorized user on another account. If your parents, for example, have great credit and are responsible with how they pay their bills each month, you can be added as an authorized user to one of their credit cards and will reap the benefits of their financial habits. When they pay on time and keep their amount owed down, your score goes up, too!
9. Don’t Make Hard Inquiries
When building credit, it can be tempting to apply for every card you see offering $0 in annual fees and great interest rates. However, that’s a big no-no in the world of credit. Each time you apply for a card, it counts as a hard inquiry, which lowers your credit score temporarily. This also goes for applying for bigger loans like mortgages and auto loans. If your goal is to make your credit score soar in 2021, avoid hard inquiries.
10. Consider Consolidating Your Debt
If you seem to be racking up more and more in interest each month across multiple different accounts, you might want to consider a debt consolidation loan. The idea is that you take that loan, pay off your high-interest debt, and then you’re only left to pay off the consolidation loan, which, if you have a good credit score, usually comes with an interest rate as 13 to 18%. Compare that to an average 20% interest rate for credit cards and it’s easy to see why it’s an appealing option.
Earn Extra Cash to Pay off Credit Debt
While bulking up your savings should always be a priority if you’re able to make it one, it’s also a great way to ensure that when it comes time to pay off debt, you have the cash to do so. This year, make saving a priority by using a Cheese Debit Card.
It allows you to enjoy zero fees when spending and also get cashback and saving bonuses. Saving money to use to pay off debt without any extra work? It doesn’t get much easier than that. Sign up today to begin optimizing your finances.
