Very few people hit a home run on their first at bat, and this is especially true for millennials who are just getting into the credit game. We’ve all been there–you needed to secure a loan for your first car to get to work, and then maybe you had to open a credit card to pay for the repairs of that car.
Stacking up credit card debt is easy to do, but getting your credit score back up to a respectable number is much trickier. Fortunately there are fairly quick and simple steps that millennials can take to raise that pesky number on their credit report.
Use Rent Payments to Raise Your Credit Score
Moving into your first apartment? Did you know that you can make your rental payments a matter of public record?
Credit is a matter of public record, which means that any payment or loan you take out publicly can be reported to the three major credit bureaus. Rent is one of those types of payments that can go either way.
Your landlord may not be reporting your rent payments to any of the major bureaus but you can actually request that they do. If you are going to have to pay your rent anyway, then why not let it help you boost your credit score?
Check with your landlord. They may already be reporting to a bureau like RentBureau, but if not, request that they do. It may result in a small transaction fee, but some landlords are willing to split it, and ultimately it’s a small price to pay to improve your credit score.
Make Sure Your Credit Report is Error-Free
Did you know that you can get one free copy of your credit report from each of the three major credit bureaus (TransUnion, Experian Equifax) every 12 months.
Why is this important? Credit agencies and financial institutions are not perfect. Sometimes they make mistakes and these mistakes could be affecting your credit score. Request a copy of your credit score and review it carefully. Make sure there are no errors such as outstanding debt that has already been paid or a late payment when you know you paid on time.
Contact any creditors regarding mistakes and let them know that you will be contacting the credit bureaus as well to inform them of any errors.
Ask for a Raise (to Your Credit Limits)
There is a nasty little equation referred to as credit utilization ratio and it too could be ravaging your good credit score without you even knowing it.
Your credit utilization ratio compares how much you have used on a certain line of unsecured credit (anything that is not a secured credit card or loan) to how much credit is available. For example, let’s say you have a card with a $3,000 limit and you have spent $2,500.
You can divide 3,000 by 2,500 to find your credit utilization ratio for this hypothetical card. You will see that it is 0.83 which means that you have used 83% of that cards available credit.
That is too high. It tells a story that you are consistently bumping up against your debt limits and that you might be struggling to stay on top of your finances. (Related: Did you know there’s such a thing as “good debt?” Check out the differences between good debt and bad debt here.)
However, one quick way you can remedy that problem is by requesting an increase of credit on a particular card. This will make your credit utilization ratio more favorable which will quickly boost your credit score. Banks will often increase your credit line if you’ve been a loyal customer for a while or perhaps if you’ve recently received a raise. At the end of the day, it can’t hurt to ask.
Don’t Take Out Multiple Credit Cards at Once
You just graduated and you may be seeing a rush of letters in the mail saying that you have been pre-approved for this exclusive offer or that you have been selected for this special low interest card. It can be tempting, but it is very important to be patient, especially when you are just starting to establish credit.
Don’t get 5 cards at once and start buying stuff for your new apartment. Opening a bunch of unsecured lines at once essentially tells the bureaus that you don’t have any real money and you are grasping at every offer you can get.
Think about applying for just one, or at the most two, of those shiny new cards you get in those mailers. Keep them for a year or so. Pay them off responsibly and then open one or two more. This is a promising sign to creditors and tells them that you are responsible and that you don’t live entirely off of credit.
Age Your Credit (like Good Cheese, or Wine)
Or wine, whichever analogy you prefer. Remember that measly little $500 credit card your parents opened up in your name, gave to you for emergencies and paid off for you? Now that you are an adult you may have the notion to close that account and get a credit card suited for a real man or woman.
Don’t do that. Aging your credit is a very good thing because it lets creditors know that you can spend more money, but you obviously don’t need to. Having long credit histories can work wonders for your credit score.
Enlist the Family for Help
You are young, strong and independent but everyone needs a little help from their family from time to time. As far as credit goes, a family member in good standing with the bureaus can leverage their position to help out a little bro or sis with floundering credit.
This can be done by becoming an authorized user on someone’s existing credit account. The account must have a balance and of course, you will be responsible for paying any charges you make to the account but becoming an authorized user on someone with good credit’s account can instantly bump up your own score. Plus, it’s relatively easy.
Just remember to be careful—relationships are always harder to repair than credit scores—only charge what you can afford! Or better yet, eliminate the temptation altogether by not actually having the card. You would just be an authorized user on the bank’s records; but without the actual card, you’ll never be able to charge anything.
Credit is a Big Responsibility
As lame as it probably seemed at the time, your parents weren’t just blowing a lot of hot air. Being responsible with your credit, making payments on time and not spending more than you need will ensure that your credit will remain sterling in the long-term. This is a good lesson for millennials and, frankly, just about anyone.