If you are looking to buy a car, you might be told that your credit score is holding you back. It affects everything. Since it is one of the major indicators of your financial health, it is looked at when applying for cars, loans, homes, and just about any other major investment.
But it has to be built up. Without credit an auto lender is going to ask for a guarantor in order to sell you a car. If you don’t have that, or you don’t want to use a guarantor, there are a few things you can do to build your credit. With your credit built up, a lot of doors will open up and interest rates on what you are borrowing will go down.
You can check your credit score with apps or websites online, but if you find yourself in the red, or simply want to do better, take a look at our guide to building up your credit.
Review your bill payments
Some of these are simple enough to deal with. Try and avoid opening new accounts, for example, but payment history has the biggest impact on your credit score. To keep it under control, you should pay your repayments, like student loans and credit card debt, responsibly and on time. Avoid late payments at all costs. Make use of a filing system to keep track of monthly bills and set up due-date alerts and automated payments.
Consider Consolidating Your Debts
If you are having trouble with your debt repayments, you might need to look into a more permanent solution. If you are lucky enough to have any assets or extra income, it should go towards clearing your debt as fast as possible. Not only will you avoid any interest it might accrue, but you will then be free to pursue a lot of other financial endeavors like business and personal loans, auto loans, mortgages and more.
You can start by paying off more than the minimum monthly repayments when you can. If you have a lot of outstanding debts in various places, you can take out a debt consolidation loan from your bank or credit union. You can also avoid the interest rates by consolidating them under a balance transfer card or deal with the debt by refinancing an auto loan. Find more information on car financing and credit here.
Keep your credit utilization low
Your credit utilization is the portion of your credit limit that you are using and is the second most important aspect when calculating your credit score.
You can keep your credit utilization low by paying your credit card balances in full every month. If you can’t, then aim for less than 30% of your total credit limit to start. If you start with 30%, you can then pay more every month until you have 10%, which is ideal for improving a credit score.
You can also ask for a credit limit increase to improve the ratio of your credit utilization. If you don’t spend and your balance doesn’t go up with the increase, you will see a greater proportion in your credit utilization ratio. This can be done online with most credit card companies with just an update to your household income.
Fatten up your credit file
If you have a thin credit file, meaning that you don’t have enough in your credit history report to generate a credit score, you can fatten it up with various third-party financial apps. Like Experian Boost, which takes financial data that a credit report usually wouldn’t take note of and adds it to your report, like your utility payments and banking history. You can also use UltraFICO which focuses on building your FICO score. To keep these apps happy, you only need a savings cushion, maintain a bank account, pay your bills on time with your bank and avoid overdrafts.
There is a third option available to renters, too. On-time rent payments can be rewarded by Rental Kharma and RentTrack, which will add your rent payments to the relevant credit bureaus. However, it might only affect your FICO score.
Don’t ask for new credit or hard inquiries
The two types of inquiries have different effects on your credit score. “Soft” inquiries are things like checking your own credit, or giving an employer permission to check your credit, and they won’t affect your credit score. On the other hand, “hard” inquiries will affect your credit score and include applications for a new credit card, mortgage, auto loan or other new credit. They won’t have an effect if they are occasional, but many in a short space of time can damage your credit score.