When you find an apartment you really love, you don’t want to give up on it due to a shaky financial track record. Even if you have a less than stellar credit history, there are many things you can do to improve your score in both the short, and long term. Follow along as we dive into how your credit score works and learn what you can do to work on improving your credit score, no matter your financial background.
Credit Score 101
What makes up your credit score anyway? Your credit score is a grade that tells lenders how you stack up against other potential borrowers. Basically, it’s a rough indication of how likely you are to repay a loan on time. The FICO credit score is an industry standard that is used in over 90% of lending decisions and by all three major credit bureaus. So, this score is most likely what your landlord sees. Don’t be caught off when they do–visit ApartmentSearch’s Moving Resources to find out what your credit score is right now, for free. If your credit score isn’t what you (or your landlord) had in mind, then keep reading and we’ll tell you how to work on improving your score in each of the five areas that FICO considers.
Improving Your Score
1. Make payments on time, every time.
Your payment history is the single most important factor contributing to your credit score. Don’t worry, a few missed payments here and there won’t damage your credit score beyond repair. Try these tricks from Forbes to help your score recover from a spotty payment history.
In the short run…
- Get current! If you have any outstanding or missed payments, pay them off as soon as possible.
- Negotiate! If you have a mostly clean payment history, ask your lenders if they will “erase” a missed payment from your record. Explain to them why your payment was late (you lost your job, had an unexpected expense come up, like a medical bill etc.) and offer to pay off the remainder of your balance in exchange for a clean slate.
In the long run…
- Set up automatic payments for your credit accounts so that you never miss another payment again!
2. Avoid maxing out your cards.
Having a lot of loans, or even a lot of credit card debt, won’t necessarily hurt your credit score. With that being said, lenders will look at your credit utilization ratio (the percent of your total available credit that you have spent) to see what kind of relationship you have with debt. Do you rely heavily on credit to make monthly purchases? Do you frequently use up most of your credit each month? These behaviors are red flags that could be hurting your score, even if you pay off the balance in full each month. Here’s how you can reduce your credit utilization ratio to improve your score.
In the short run…
- Raise your credit limits. If you have a good payment history, ask your lender to raise your total credit limit. This will lower your credit utilization ratio, and you won’t even have to change your spending habits.
- Make two payments a month. The first payment will lower your Credit Utilization ratio, and the second will prevent you from paying a late fee and any additional interest.
Don’t close unused cards. Make a few small purchases on them each month to keep them active. Then pay them off to keep your balance down.
In the long run…
- Keep your balance on credit cards as low as possible.
- Pay off debt instead of shifting it around. The same amount of debt on fewer cards can actually hurt your credit score, says FICO.
3. It’s OK to be the new guy on the block.
If you are new to the credit market, or if you’ve never had a line of credit before, this will likely impact your credit score. Thankfully, the length of your credit history only accounts for a small portion of your overall score.
If you’ve never had a credit card…
- Open one as soon as possible! Use it responsibly and make payments regularly and consistently.
- Become an Authorized user. If you don’t qualify for your own credit card, ask a relative with a strong credit history to make you a user on their card. Again, be responsible and make all your payments on time. Over time, you will accumulate credit history that will enable you to open up your own card.
- Be wary of new cards. Opening up new lines of credit can make lenders nervous. Without a stable payment history, who knows if you’ll be able to meet this new financial obligation?
In the short run…
- Don’t open up lots of new credit cards at one time. Especially if you have a relatively short credit history, this can reduce your credit score.
- Don’t open new credit cards that you don’t need to increase your credit line. This could negatively impact your credit score in the long run.
- Know that checking your credit score WILL NOT lower it.
In the long run…
- Only open up new lines of credit as you need them. If you can, use the credit you already have to make new purchases.
4. Mix it up, but stay on top of your accounts.
The two basic forms of credit accounts are revolving accounts (like your credit card) and installment accounts (such as student loans or mortgages, which you take on as a lump sum and then pay off over time). A mix of both demonstrates responsibility and financial security, provided the accounts are in good standing, says Credit Karma.
In the short run…
- Consider paying for high ticket items on an installment plan. If you are going to make a big purchase (like a new computer or a piece of furniture) consider asking the store to put it on an installment plan, rather than paying for it with your credit card. Retail installment plans often have low or zero interest rates, so you might even save money in the long run.
In the long run…
- Don’t open up lines of credit you don’t need. It won’t help your credit score to “mix it up” if you don’t use or pay off the new credit accounts.
Now that you are armed with knowledge about how to improve your credit score, it’s time to put it into practice! Take it a day at a time and you’ll soon see: repairing your credit may not take as long as you think. Head to ApartmentSearch.com to pick out your next dream apartment and give yourself a fun goal to work towards!
