2020 wasn’t an easy year. Shelter-in-place orders and social distancing forced many businesses to close, which hurt not only them, but also their employees.
According to USA Today, 20.6 million individuals lost their jobs after the coronavirus struck. There’s no denying the impact of COVID-19, especially on people’s finances. But there’s good news. Of the 20.6 million who lost their jobs, 18 million are expected to return to work after the pandemic passes.
Every day, more and more employees are returning to work as the world adjusts to its “new normal.” While the pandemic might’ve hurt your credit, if you’re back to work, there are steps you can take to rebuild it.
Even if you’re still struggling financially, the following steps can help. From keeping your credit card balance low to finding a co-signer, here are six ways to improve your credit score:
1. Check Your Credit Report
Credit reports can have errors that may harm your score. Make sure the payment history on your report is correct. If something doesn’t look right, notify the credit bureau immediately.
While you don’t want to pull your credit report every day, you should check it every now and again. With FreeScoreOnline.com, you can access your credit report three times a year for free. You can also take advantage of credit monitoring tools to keep you up-to-date on any big changes.
Perusing your credit report will also show you where the problems lie. After all, how can you improve your credit score if you don’t know what’s hurting it?
For example, if your report shows a history of late payments, you can use autopay to ensure your future payments are on time. If your report shows you continuously keep a low balance on your credit card, it’s time to cut back your spending. By checking your credit report, you’ll be in a better position to create a plan to rebuild your score.
2. Pay Your Bills on Time
It might sound easy, but paying your bills on time can be a challenge. From mortgage payments to phone bills to grocery bills, you probably have a lot on your financial plate. Maybe you think it makes sense to put some of your bills on the back burner for the time being. You can resume payment when you have a better handle on your finances.
The truth is, the last thing you want to do is miss payments — especially your credit card payments. Those are the biggest factors in your credit score. Ideally, you’d pay your credit card bill in full every month so you won’t acquire debt. The larger the balance you leave on your card, the more debt you’ll acquire — and the more money you’ll have to pay off. It’s a vicious cycle.
But if paying off your full balance isn’t possible right now, at least pay your credit card’s monthly minimum. And if you have bills that have gone to collection, work on paying those down first. Having debt in the collection process can drastically hurt your score.
3. Keep Your Credit Balance Low
An easy way to improve your credit is by keeping your credit card balance low. Even if you’ve racked up a high balance in the past, it’s not too late to make a change.
Most experts recommend your balance be no higher than 30% of your available credit. Is your balance higher than that? That’s OK. By making monthly payments — as much over the minimum as possible — your balance will eventually drop. When that happens, your card issuer will report that drop to the credit bureau, which will benefit your score.
4. Consider Opening a Secured Account
Secured credit cards are specifically designed for people who either don’t have a credit history or need to rebuild their credit. For example, if your accounts have been closed, consider starting over with a secured credit card.
These cards require a cash deposit, which is usually equal to your credit limit. If your cash deposit is $500, for example, your credit limit will be $500.
That may seem like a daunting amount to put down, but this deposit works in your favor. If for some reason you miss a payment, your deposit will be used so you don’t incur late fees. And if you never miss a payment, you’ll eventually get your deposit back.
When getting a secured credit card, make sure to choose one that reports to major credit bureaus. Most of them do, but not all of them, so be sure to double-check. You want your credit-building efforts to be noted and to boost your score.
5. Look for a Co-Signer or Become an Authorized User
If you’re struggling to get approved for a credit card, consider asking someone to co-sign the credit card application with you. Keep in mind that if your co-signer doesn’t have good credit either, you’ll probably still be turned down.
When choosing a co-signer, it’s important to ask someone you trust — and who trusts you. If you don’t make your monthly payments, your co-signer’s credit will be damaged. Make sure you’re ready to handle the responsibility before asking a friend or family member to help you.
Becoming an authorized user on another person’s card is a further option to help rebuild your credit. While you will have your own credit card, it will be connected to someone else’s account. This means you’ll be able to use the card but won’t be legally responsible for the purchases. Because that responsibility remains with the account holder, this credit-building tactic has only a moderate impact on your score.
6. Keep Track of Your Progress
While checking your credit report once a year won’t ding your credit, don’t make a routine habit of pulling your report. That will actually hurt your credit score. Instead, consider using a credit monitoring service that will alert you of your progress.
Credit monitoring services can range in price from free to $30 or more per month. The no-cost services typically monitor only one bureau, while the paid ones generally check all three. These services also vary as to the frequency and method of their alerts and other features they provide (e.g., identity theft protection). Personal finance sites like WalletHub and NerdWallet feature comparison chats that will help you find the best service for your needs.
Rebuilding credit isn’t an easy task. Chances are, you didn’t lower your credit score on purpose. Unemployment, high living expenses, or something else entirely most likely contributed. The good news is, it’s never too late to turn things around. By making small adjustments, you can start to improve your credit history, and in turn, your score.