Want to improve your credit score? Check out these tips!

Opening new lines of credit can make it easy to fall into more debt than you ever planned. Sometimes it’s a new car loan, taking out a store credit card to buy a large piece of furniture, or charges that added up quicker than you noticed. No matter the reason, it’s possible to lower debt and increase your credit score! 

When it comes to building back your credit score, there’s three main goals to strive for: 

1. Decrease Debt 
2. Improve Credit Score
3. Increase Savings 

Decrease Debt

Paying off debt can take a long time—months, or even years—but it is possible with the snowball method. With the snowball method, your focus is on paying off larges interest debt. Once that is paid off, apply the funds you were using for that debt to the next loan with the highest amount due or highest interest rate. Once that debt is paid, continue the method. 

The first step is making a game plan! 

First: 

1. List out all your debts 
2. Order them by highest interest items to lowest interest items 

Then Ask Yourself: 

1. Are you paying at least the minimum on each payment monthly? 
2. Can you afford to make large or extra payments on any of the items each month? 

If the answer is yes to both of those, then start with that! If the answer is no to either or both questions, then consider ways to refresh your monthly budget to allow for more payments to be made. Consider getting a temporary part time job if your schedule allows. 

Improve Credit Score

The goal is to owe less and improve your credit score. This is where the debt-to-income ratio, also known as DTI comes in. DTI is your debt owed in relation to your fixed monthly income. Ideally, you want the amount you own to be exceedingly small compared to the amount you make. A lower DTI can mean a higher credit score. 

Don't Close All Lines of Credit at Once

If you have multiple credit cards, you will want to decide which few you want to keep and close the rest. The lower credit line you have available overall, the less you can go back into debt. Closing all lines of credit at once can dent your credit score. Close one at a time with a couple of months in between each. If you are working with a mortgage consultant already, be sure to check with them BEFORE closing any accounts. 

Set Up Automatic Payments

Punctual payments are key! Avoid missed deadlines and late fees by setting up automatic payments. If a bill doesn’t have an online payment option, make a note of it on a calendar at least one week before it is due and a follow-up note to remind you a couple of days before. 

Avoid Large Purchases

Working to lower debt means working to decrease spending. Adjust your budget to save and cut down on extra spending as much as possible. Avoid large purchases, like furniture, until you can purchase in cash. Most importantly, don’t open new lines of credit while working to close old lines of credit. Continuing to borrow keeps you in the debt rut. 

Increase Savings

Once your debt is paid off, it’s time to really focus on adding to your savings. If you got that temporary job, consider keeping it, if your schedule allows, to add that income to savings.  

An easy way to grow savings is by setting up an automatic transfer of a fixed amount from checking to savings each week, every other week, or even month. Continue to budget, monitor your spending, and avoid taking out unnecessary lines of credit! 

Now that you’ve been familiarized with these three goals, you’re ready to set your own for paying off debt and building back your credit score.