A lot of people think of credit scores as magic numbers that bounce up and down without reason. Sure, they’re linked to a lot of factors, but that doesn’t mean they’re beyond your control. In most cases, you can manage a great credit score even without a huge salary. You just need to manage your expenses better.
Let me acknowledge though that this isn’t true for all people. There are millions under crushing debt levels and the economic system has made it impossible for them to get out of it. That being said, you can choose to be smarter about your personal finances. So here are 5 credit hacks that you can use to improve your credit score.
5 Best Ways to Build Your Credit Score
Know that these “hacks” won’t get you out of a jam if you’ve fallen on hard times. These hacks will, if compounded over time, comfortably get you to a great credit score. So let’s begin.
1. Dispute Any Credit Score Errors Immediately
You should keep an eye on your credit score regularly. You don’t need to obsessively check it every month, in fact, you should check them only once per year. That being said, you can look at them once every 4-5 months. That’s just good finance. This will not only help you keep track of how your purchases are impacting your score, but of any errors.
If you catch an error and report it, you can actually improve your credit score. This also shows the credit agencies that you’re a responsible consumer. The Federal Trade Commission estimates that nearly 20% of consumers have errors on their credit reports. These mostly go unreported. So report on those errors since no one else will.
Get free copies of your credit report every 12 months from any of the three major credit reporting companies. Use this to your advantage and get 3 copies every year, each from a different company.
2. Keep Your Credit Utilization Below 7%
Your debt or credit utilization rate shouldn’t go too high above the normal rate of 30%. However, credit expert John Ulzheimer says that near-perfect FICO scores (>760) belong to those with debts that don’t exceed 7%. So if you want to become part of the credit score elite, you should follow this hack.
That doesn’t mean you should only keep below the 7% limit on a credit card. At times you may have to burst through that limit for a purchase. This can include a premium smartphone or tablet, or even a lavish gift for a friend or relative. Nevertheless, keeping below the 7% limit is a good practice for most of the year. This is one of the best ways to build your credit score, even with a small salary or credit limit.
3. Buy Appreciative Assets With Your Credit
One of the best ways to build credit with a credit card is to only buy items that appreciate in value. That’s a risky thing to do since appreciative assets cost more as time goes by, but that’s why you plan. Make sure to have enough money in the account to pay off the purchase immediately.
According to Stacy Johnson, your credit score improves if you buy things that appreciate in value. Due to that cycle, your money increases in value over time as well. Stacy has always bought used cars except for the first that was bought with a loan. By buying used cars, he has always increased the value of the cash he used to buy that first car. That’s why he has a perfect credit score of 850.
So, for a great credit score, he has completely cut out buying clothes, cars, and food with a credit card. He only invests it in things like web servers for his website.
4. Ask for Goodwill Adjustments
People with near perfect credit scores are also fallible. Hence, they can get black marks on their credit history that they can’t erase quickly. However, sometimes, if you can call up the credit bureau or lender to ask them to remove it, it works. You will have to fully explain yourself, of course. Sometimes this may not even work. However, it’s worth the try.
5. Lower Credit Utilization With Retirement Savings Plans
This may be a little tricky to afford for those with small salaries. However, when you’re earning a salary that you can comfortably live on, you can try this. Retirement plan loans aren’t reported to credit bureaus. Hence, you can use loans to fund your retirement without lowering your credit score. The reason you shouldn’t do this on a meager salary is because retirement loans are deducted from your monthly paycheck.
Using these hacks, you can pretty comfortably keep your credit score high. Of course other good practices like paying your bills on time, turning on automatic payments, small debts always help. Just think of these hacks as supplements to your already great financial practices.