Paying off your bills and debts on time is one of the most common ways of building credit, as it happens naturally for most people unless emergencies occur. However, that isn’t necessarily the only way to increase your credit score.
Your credit history could also be improved by developing healthy financial habits that don’t involve hurting your existing funds.
There are multiple strategic ways to boost your credit without taking on new debts. In this article, we’ll be taking a look at 7 tips and tricks that you should apply to your finances for building credit without hurting your overall finances.
1. Have a Proper Repayment Plan for Short Term Loans
No matter how prepared you are, a financial emergency can occur at any time. Having an emergency fund to fall back on in such times can be incredibly helpful.
However, it can be a little more difficult when you’re dealing with a lack of cash. Additionally, if you have a less-than-perfect credit score, securing a traditional loan may also become difficult. That’s where bad credit loans come into the picture.
When managed responsibly, bad credit loans can not only offer you the funds you need but also help you improve your credit score with the help of timely repayment.
When we say ‘responsible use’, we mean borrowing a manageable amount of money and repaying it on time. This requires research and planning from your side, by comparing the rates of interest of different lenders and choosing the one that best suits your financial situation.
By doing so, you have a better shot at tackling the urgent expenses at hand while also ensuring your credit score improves.
2. Use Your Credit Card for Small Balances
Having a credit card at your disposal doesn’t have to mean spending big at all times. Instead, use it for regular expenses such as groceries or monthly subscriptions.
Since the monthly balance of your credit card isn’t going to be that high, ensure that you pay it off before the due date. By doing so, you manage your monthly bills and debts effectively while also improving your credit score and history.
3. Keep an Eye for Credit Inaccuracies
Your credit report is generated by the Credit Reference Agency (CRA) once every four to six weeks. These reports aren’t guaranteed to be spotless, and mistakes can be made by the CRA.
If you find something on your report that you believe to be incorrect, such as a wrongly reported late payment, you have the right to file a dispute against the credit card issuer. Bringing these issues to their attention and getting them fixed will give your credit score a lift.
4. Don’t Close Your Old Accounts
When you don’t use an old credit card anymore, you might instinctively shut down that account. However, it is best to keep such accounts open as they contribute to your credit history and total credit limit.
Closing these accounts will reduce the average age of your accounts and lower your credit limit. It’s a wise choice to close the account only if the credit card comes with an annual fee that is too high for you to afford.
5. Beware of Credit Repair Scams
Frauds have always been rampant in the world of finance, and a specific type of fraud involves tricking people into credit repair schemes. These companies claim to have the power to legally delete all the information from your credit file.
The truth is that shortcuts like these never work, and no one except the CRA can erase your data. Don’t fall for these scams and remain aware. Instead, focus on methods that have been proven to work in the past even though they require more effort.
6. Request an Increase in Credit Line
Upon request, some credit card issuers increase your credit line, meaning that you have an extended limit on your card. If you manage to keep your credit usage low after your limit is increased, your overall credit utilisation goes down, improving your credit score.
Oftentimes, credit card companies would increase your credit line automatically if you’ve actively used the card for a long time. Your focus has to be on maintaining a good credit balance and not letting it exceed your previous one.
7. Consistently Track Your Credit Score
It is good to have a mental awareness of your credit usage, but there’s no harm in having a system in place to track it efficiently. When you notice a drop in your credit score, you have a chance to proactively intervene and fix your errors before they turn into major problems.
For example, if you check your credit scores regularly and notice a dip, try to understand what caused it. Did you order too much from outside or did you make one impulse purchase too many? Once you’ve figured out the root cause, work on it and ensure that it doesn’t happen again.
Is it Possible to Build Credit Without Building Debt?
With smart planning and utilisation of your credit, yes, it is possible to improve your credit score without relying on paying off debts. You have to be mindful of your usage and keep looking for avenues to benefit your credit history.
These avenues range from simple hacks such as using your credit card for small payments to intricacies like reporting invalid credit reports. You have to be consistent with the rules that you set for yourself and keep monitoring your credit score in case of any wrong patterns.
Once you familiarise yourself with these habits, your credit score and history will automatically see a boost.
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