On July 8, 2020, Experian released a report that showed the average credit score actually increased by 1% from January to May in 2020, the early months of the pandemic. Average credit balances decreased by nearly 14% and credit utilization was also down.
You might think that a rough economic year like 2020 would have had the opposite effect, yet according to the Federal Reserve, U.S. credit card debt is under $1 trillion for the first time in three years. Here’s how new savers can keep that momentum going and learn how to improve a credit score in 2021.
How to Improve Your Credit Score in 2021
Market volatility, political uncertainty, and health concerns have caused Americans to be more cautious in their spending habits during the pandemic. That’s a good way to keep yourself on solid financial footing during these troubling times, but you’ll need to also do the following if you want to significantly improve your credit score this year:
1) Make Extra Payments above the Minimum: Only paying the minimum amount due will keep your credit score from going down, but it won’t significantly raise it. Pay extra and pay often to bring those balances down as quickly as possible.
2) Ask for Credit Limit Increases: There’s no harm in having a higher credit limit as long as it doesn’t lead to an increase in spending. It’s actually a benefit, as higher limits mean you’re using a lower percentage of your available credit. The utilization ratio is an important variable when your score is calculated, and one of the easiest factors to change quickly. Many card issuers even allow you to request a credit limit increase online.
3) Dispute Credit Reporting Issues: Despite the optimistic numbers, creditors are still dealing with defaults and charge-offs. Check your credit report frequently to make sure all information is accurate. Dispute anything that isn’t.
4) Use a Secured Credit Card: This is particularly helpful for those trying to build credit for the first time or coming back from a financial mistake. A secured credit card is backed by a cash deposit, eliminating the possibility of default. Stay on time with payments and you’ll increase your credit score.
5) Keep Credit Cards Open: Even if you’re not currently using a certain credit card, keep it open. Closing accounts lowers your credit score because it decreases your credit limit and increases your utilization rate. Pay them off and keep them in reserve. The only exception is if the cards come with high account fees — the fees may not be worth the slight boost to your credit score, depending on how much other credit you have. (A lot of diverse credit and closing one card shouldn’t have much of an impact — if it’s your only form of credit, that may be a different story.)
These five tips are valid at any time, but with economic uncertainty facing us in 2021 they’ve never been more important. Increase your credit score today so you’ll have more purchase power going forward. It’s one of the keys to financial security.
Notice: Information provided in this article is for informational purposes only. Consult your financial advisor about your financial circumstances.
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Original Source: 5 Fast Tips to Improve Your Credit Score in 2021