1. Set up automatic bill pay reminders.
If you're not paying your bills on time, you're hurting your credit score. A late payment is never good, but the later the payment, the worse off you'll be. The occasional 30- or even 60-day late payment won't hurt your credit score too much, but just one 90-day late payment can damage your credit for up to seven years. The reason for this is that your credit is actually based not on the action of paying late, but on the likelihood that you're going to pay a bill late, according to Credit.com. Once you make one 90-day late payment, lenders assume you're more likely to be late, causing them to drive down your score.
To avoid getting into a situation where you're not making on-time payments, use a bill reminder and digital life organization service, such as Manilla.com, which sends you bill reminders when it's time to pay. Not only does this help keep your credit in line, but it also helps you avoid wasting money on late fees.
2. Monitor your credit report.
Check your credit report at least once a year to ensure there are no errors, fraud or issues of identity theft. One little mistake dinging your credit score could cost you the ability to buy a house, take out a personal loan, open a credit card and even get a job. Use a service like CreditSesame.com to check your credit score whenever you want for free. You can also use the service to purchase your credit report.
3. Diversify your credit.
Having a variety of different types of credit—credit cards, a mortgage, student loans, etc.—can give your score the boost you're after. "A credit report that reflects a mix of various types of loans shows lenders that you can readily manage your credit and can help boost your credit score," says Tony Wahl, credit expert for CreditSesame.com. "If you have only one type of credit—like a student loan—consider diversifying your credit with a credit card or auto loan."
4. Put more money toward loans.
If you've co-signed a loan for your child's education, you're accepting full responsibility for the debt if your child is unable to pay, so it appears in your credit report and it affects your score. To expedite the student loan repaying process to ensure the bills are always paid on time, you or your student can join Upromise by Sallie Mae, which is a rewards program from which you can earn cash back on purchases and apply the money directly toward the student loan balance. For instance, if you go through Upromise to shop on sites like BestBuy.com, Target.com or Expedia.com, you could earn 5% cash back that would go directly toward loan payments.
5. Keep your credit utilization ratio in check.
You may have heard that you should never close a line of credit because it could really hurt your credit score. In actuality, the action of closing the card isn't what's hurting it—it's what closing it could do to your credit utilization ratio. This ratio is the percentage of your credit limit that you actually use each month. So, for example, if your credit limit is $10,000 and you spend $1,000 on your credit cards each month, your utilization ratio is 10%, which is where it should be, according to FICO.
Here's how closing a credit card could affect it. Let's say you have three credit cards—one with a $2,000 limit, one with a $5,000 limit and one with a $10,000 limit, and among all of them, you spend around $1,700 each month, keeping your utilization ratio at 10%. But then, you decide to close the card with the $10,000 limit because you never really use it. If you continue to use the other two cards to spend $1,700 each month, your utilization ratio soars to almost 25%, which could cause your credit score to go down.
6. Adjust your budget.
Paying off your balance in full each month is essential to improving your credit, but if it's not possible to do so, you should come up with a plan to pay down your debt as quickly as possible. Rework your budget to see where you could cut back on spending so you can add more to your debt payments each month.
Sarah Kaufman is the editor-in-chief of The Manilla Folder at Manilla.com, the leading, free and secure service that helps you simplify and organize your daily life. Using just one password, Manilla lets you manage your finances, utilities, daily deals, travel and rewards programs, Netflix and magazine subscriptions, and more—all through Manilla.com or the top-rated iOS and mobile apps. Sarah is also a regular contributor to Yahoo! Finance, Good Housekeeping, The Motley Fool, The Jane Dough and other major sites. For more debt and credit tips, visit The Manilla Folder.
