Improving Your Credit Score without Existing Debt

Wait a minute…you’ve never been in debt? That’s amazing! Congratulations! High five!

But…before you move on. Here is something that may shock you. Even though you have no debt, your credit score may still suffer!Don’t believe me? Do you know what your credit score is?

You can go to check it now if you’d like…I’ll wait…if you don’t know how, there are some links in the description below that take you to free and paid sites to check it.

While I wait, though, I’ll tell you that having a bad credit score can cost you thousands of dollars in extra interest costs, and potentially even your dream job or apartment. For someone who has been so good about money, that would totally suck. An excellent credit score is around 750.

If you’ve checked and found out that your credit score needs a boost, keep watching. Today is all about tips for improving your credit score even though you don’t have any debt.

Okay…so you’ve always paid off your credit card before the due date, never went over your limit, or maybe you’ve always just used cash or debit to pay for everything. You were fortunate to graduate university or college with no debt. And you’ve always paid your bills on time, and haven’t needed to finance a car.

SO WHAT GIVES WITH THE MEDIOCRE CREDIT SCORE?!

The irony is that THE FACT THAT you’ve never had any debt and you’ve paid your bills in full and on time can also do harm…to your credit score that is. The reason? Credit agencies don’t have much information about you, so lenders just don’t know how good you’d be at paying them back if they did lend you money. So what can you do to demonstrate to the lenders that you are an upstanding creditee?

Here are 5 tips to improving your credit score:

Number one. Use a credit card. If you don’t have a credit card, get one and use it to pay for regular items, paying it back in full and on time each month. If you’re worried about missing a payment, set up automatic notifications with the credit card company when your bill is due and/or set up calendar reminders.
Number two. Don’t keep your balance close to your limit. Your utilization rate is recommended to be under 35%. This means that if you have total credit available of $10,000, your balance shouldn’t be more than $3,500 at any time. I made this mistake: I got my credit card in university with a relatively low starting limit and I never thought to ask the bank to increase it because I never spent more than my limit. This means that I had a high utilization rate, and since I was constantly racking up a balance close to the maximum (even though it wasn’t very much in dollar terms), my utilization was high and my credit score fell accordingly. Now, whenever I’m offered to increase my credit limit, I happily say yes, knowing that I won’t ever spend that much, but it will help improve my score.
Number three. Keep old credit cards with lots of payment history, especially if there is no fee. If you have been using one card for a while, but are looking to upgrade to a newer, better, card, keep your old card active, and use it occasionally. The longer your credit history is, the better. I recently got two new credit cards that give me better rewards than my old card. Instead of cancelling the old one that I don’t use anymore, I hold onto it, and will use it on occasion, so the history stays on my report. This also helps with my utilization since I have more available credit.
Number four. Take on different types of debt. Credit cards and lines of credit are popular types of debt. These are great for showing good payment history, keeping your utilization low, and keeping a long track record on your report. The problem with just having these types of debts is that you can rack up your balance at any time. This can be risky in terms of a credit rating. Debt where you pay down a specific amount every month, like a mortgage or car loan can improve your score. So consider that when taking on new debt.
And finally, number five: Beware of bills you might not know affect your credit score. Did you know that things like cell phone, cable, and utility bills and gym memberships can also pop up on your credit score? While these aren’t normally reported to the credit agencies, they are if you miss payments.

Now you might be thinking: I need to go get a bunch of loans and credit cards! But beware! Applying for too much credit at once will lower your score since it can be interpreted as a sign of financial difficulties. Every time you apply for credit, your credit is checked and your score drops. The exception to this is if you’re shopping around for a mortgage or auto loan. In this case, multiple checks are counted as one as long as they’re done within a couple weeks of each other. And remember, improving your credit score takes time.

Do all of the above and continue to live as debt-free as possible and you’ll be on your way to a great score! I hope this video has helped you. If there are any other questions you want me to cover, please let me know!