How to improve your credit health

How to improve your credit health

Every one of us has our own unique credit history. Your credit history may contain all sorts of financial decisions, from auto loan and mortgage to credit card balance. Regardless of if you have good or bad credit, there is always room for improvement. One thing to keep in mind is that your credit history is like a journey on the road. This means that there is no fast method of improving your credit to an excellent score. Financial responsibility will help you go a long way towards improving your credit health and credit score.

That being said, we will discus some dos and don’ts of credit health. Maintaining a balance and good credit health will help you build a great credit profile and history.

The Dos

You should pay down your debt

It’s important that you keep the credit utilization ratio in mind when using your available credit. The credit utilization ratio compares the amount of debt you carry to the amount of credit that you have available at your disposal. For example, when you apply for a personal loan, lenders will make sure you’re not borrowing more than you can afford to pay back to them.

Many credit experts say that you should keep your overall credit utilization below the 30% mark. One of the easiest ways to do this is to pay off your credit card balances in full each month. The lower you maintain your credit utilization ratio, the better because it suggests you can use credit responsibly. Often, this us usually correlated with high credit scores and better credit health.

If you’re struggling to pay off debt, there are a few things you can try:

  • Transferring your high-interest debt to a single credit card by balance transfer
  • Asking your creditor for a credit limit increase
  • Opening a new card and maintaining a low balance on a monthly basis

Remember, the more often you pay off your credit card balance, especially paying off that balance in full each month, the better you show as being financially responsible.

You should diversity your credit type

Your credit report offers insight to creditors on the different types of accounts you’ve taken on and shown financial responsibility in.

It’s important to understand that creditors prefer to see a mix of revolving credit accounts (e.g. credit cards) and loans, such as student loans, auto loans, and mortgage loans. The more you’re able to diversify on the money you’re borrowing, the better. That being said, it’s not a good idea to take a loan you don’t need just so you can show different types of credit on your credit report. Only take on loans or credit when you need it.

The Don’ts

You shouldn’t close your old credit cards

The length of time you’ve have your credit history has a major impact on your credit score. There are some credit scoring models that may consider only the average age of all your existing and active accounts. On the other hand, some take your oldest account’s age as a factor.

If you close your old credit card or open too many new credit cards at the same time, you risk shortening the length of your credit history. Opening too many credit cards at the same time is especially not recommended.

With all the credit card offers out there, we know it can be very tempting to get rid of your old credit cards and sign up for new accounts, but here’s the thing: closing an account doesn’t affect your overall age of your credit history. It could also potentially lower the available credit on your credit profile and severely impact your overall credit utilization ratio.

You shouldn’t open too many new credit cards at the same time

This is one mistake that many credit card holders are prone to making. Be careful to not open too many credit cards within a short period of time. Creditors take this as a risk factor when looking at your credit profile.

Whenever you apply for credit from a creditor, they do what’s called a hard inquiry. This particular inquiry stays on your credit profile for about two years and many negatively impact your credit scores, temporarily. If you get too many hard inquiries within a short period of time, it could set off red flags for lenders, suggesting that you’re getting ready to have a lot of debt of you’re strapped on cash.

This doesn’t mean you should stop applying for new credit. You should space out the timeframe of when you apply for new credit from creditors.

The bottom line

You should remember that the best way to improve you credit score and credit health is to have patience. Improving your score and credit health isn’t something you can do within a short amount of time. It’s a long journey that will test you and your ability to maintain your credit health.

Building your credit takes time and you should always keep this on your mind. Credit scores and credit reports are meant to show your overall financial picture, so there aren’t really any quick fixes that you can apply on your credit health.

What’s the best advice we can give you? Be patient and work on developing good financial habits. When you develop good financial habits, it will help you to understand your financial profile and that will in return help you maintain good financial health for the long-term.

Hamza Khalid

Hamza Khalid is the Lead Editor at The Jolt Journal. You're more than welcome to follow him on Twitter and follow The Jolt Journal on Twitter and Facebook. If you have any questions, concerns, or need to report something in this article, please send our team an email at [email protected]. This story may be updated at any time if new information surfaces.

At The Jolt Journal, no one tells us what to write or how to write it. This is why, in the era of lies and bias, readers turn to an independent source. Rest assured, all information on our website is free of any bias or influence. If you see anything wrong with a story, please don't hesitate to reach out. We do our very best to report on the latest available information.

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