How to improve your credit score in 2021
You probably know by now that your credit score has a huge impact on your financial and life goals.
Are you looking to change jobs? Some employers will check your credit history. So if you want a better job, you may need to get better credit first.
Make a major purchase or hope to refinance your student loans? You will need good credit to qualify for an affordable loan.
Are you trying to be happier and minimize your stress? Learning more about money management can help you take control of your finances and reduce your anxiety about money.
By focusing on cleaning up your credit and increasing your credit score, you will remove the barriers that could prevent you from achieving other important accomplishments. Here’s why 2021 is the year to find out how to improve your credit score, along with some suggestions to get you started.
Borrowing will cost more this year
Interest rates on loans and credits could increase slightly in 2021.
The Federal Reserve sets target rates that are directly tied to the interest many consumers pay on auto loans, credit cards, etc. While the global pandemic of 2020 resulted in a sharp cut in rates, the stance of monetary policy could very easily change direction in 2021.
In the face of higher interest, knowing how to improve your credit score is more important than ever. A high credit score can help you earn lower interest rates and control your costs, no matter where the market rates are.
How to improve your credit score in 2021
Whether you don’t have credit, bad credit, or decent credit that could get better, here are some ways to improve your credit score in 2021 and beyond.
1. Get a secure credit card
If you are starting from square one, it can be difficult to find accessible and affordable credit options. With little or no credit history, you’ll have a hard time getting new loans or lines of credit. In other words, you need credit to create credit.
This is where a secured credit card comes in. When you open a secured card, you put down a cash deposit as security. Usually this deposit will be equal to your credit limit.
It’s easier to qualify for a secured credit card, especially if you keep your balance low and make payments on time. When you use credit responsibly, it will only be a matter of time before your credit score increases.
2. Become an authorized user
Another way to get credit in your name is to get a shared account. The easiest way to do this is to be added as an authorized credit card user to someone else’s account.
Ask someone you trust to add you to their credit card account, and it will be included in your credit reports. As long as the account is in good standing, it should reflect your creditworthiness and help increase your score.
Make sure that the original card holder is responsible for his debts. Any excess borrowing or missed payment will hurt both of your credit scores.
3. Review your credit reports
Credit report errors are more common than you might think. According to Consumer Financial Protection Bureau74% of credit report complaints relate to incorrect information on credit reports.
It’s worth getting copies of your annual credit reports and reviewing the information about them to find and dispute credit report errors. Additionally, your credit reports will often include information on factors that affect your credit.
4. Monitor your credit with free tools
Your free credit reports are helpful, but they don’t include your actual credit score.
Fortunately, there are several free credit monitoring tools available to help you track your credit score month-to-month. Your bank or credit union may offer free credit scores as a benefit to your credit card or bank account.
Or you can use a service like Credit Karma or Credit Sesame to check your score, track your progress, and receive strategies on how to build credit.
5. Pay off the outstanding debt
Paying off your debt sooner than expected is another borrowing behavior that can have a positive impact on your credit score.
Paying off credit card balances, in particular, can help lower your credit utilization rate – a key factor in how credit bureaus calculate your score. Working to prepay loans or other forms of debt can also help you as you learn to improve your credit score.
6. Request a credit limit increase
In addition to paying off your credit card balance, you can ask your credit card issuer to increase your credit limit.
Your credit limit is the total amount you can borrow with the card. The higher it is, the lower the balance you carry in comparison.
This makes it easier to keep your credit utilization rate low. And keeping your credit usage low (around 20% or less) will keep your credit rating up.
7. Always pay your bills on time
You can have decent credit without doing everything right all the time. But it is almost impossible to maintain good credit with bad marks on your credit report due to late payments or overdue accounts.
This is why it is important to pay your bills on time every month. Setting up automatic payments can help you stay on top of all your accounts and due dates.
Good credit is like an insurance policy
Your first line of financial defense against emergencies should be an emergency fund. Having cash to cover urgent expenses can help you avoid debt.
But a good credit rating can also act as a lifeline in times of hardship or financial crisis. If you’ve run out of money and need emergency loans to stay afloat, a positive credit history will give you access to credit at reasonable interest rates when you need it most.
It is important to avoid and limit debt, especially in times of financial difficulty. But knowing that you have a good credit rating can be an added layer of financial security. That is why you should always keep your credit score in mind and strive to improve it.
At the end of the day, find a system that works for you and use it to build good credit. It takes time to learn how to improve your credit, but by the end of 2021, you’ll be in awe of how far you’ve come.
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