Are you trying to improve your credit score? For many people, this means obsessing about scores, juggling cards or intentionally carrying a balance on existing cards. But there are easier and simpler ways to improve your credit. Some methods don't even involve using your credit card at all. Here are 4 easy and creative credit-improvement tips for any budget.
One of the easiest ways to damage your credit is to miss payments or have late payments. One simple way to avoid this problem is to automate your payments. Most banks offer free online bill-pay services that can be set up to send a payment at the same time each month. This can be the minimum payment if necessary, but it ensures that you will not ever miss or mail a payment late again.
Use Your Taxes
While you can't control everything about your taxes, changing some things that positively affect your monthly budget can free up additional money to ensure you don't have to use your credit cards unnecessarily. For example, you can reduce your tax burden by taking advantage of any company 401k matches, contributing to an IRA or health savings account (HSA) and making sure you track all allowable expenses if self-employed. Working with a CPA, such as Jeff Baker & Associates, PS, can help identify ways to lower your taxes and keep more money available for you to use in emergencies.
Other ways to use your taxes wisely involve refunds. If you regularly get a large refund of your own withholding amounts, reduce your withholding so that you keep more of your own money each month rather than sending it to the government. If you receive a large refund due to refundable credits like the Earned Income Tax Credit, make a firm budget for purchases in advance or place it in a hard-to-access savings account rather than treating it like a windfall.
Try a Cash Diet
It may seem counter-intuitive to improve your credit by using cash, but this is exactly what can happen. Studies have shown that using cash generally results in spending less money than using cards. This helps you reduce your credit card balances and eliminates your reliance on credit as a safety net. The end result for your credit score? Lower balances, fewer new cards, lower percentages of credit used and fewer missed payments.
Another easy way to miss payments is to have too many credit cards and lines of credit to keep track of. Eliminate "nuisance" balances -- small balances that can be easily overlooked -- on store cards or promotional cards. Consolidate medium-sized balances onto fewer cards and set up those to be paid automatically. Having fewer cards with balances and lower percentages on any remaining cards with balances will improve your score. Don't close these old cards all at once, though. Close one card per 6 months or simply store your open cards in a safety deposit box or a safe place at home.
Following these and other simple steps for fixing your credit can help you gain back control over time -- without stress, obsession or playing games with your cards. And it sets you up for success for the long haul.