If you pay your bills on time, you can improve your credit scores — it can be that simple.
Now, for someone who has irregular income or is dealing with unemployment, this can be tricky, but someone with regular paychecks should be able to pay the bills on time. Payment history has a big impact on your credit scores, so if you’re looking for a place to start when improving your numbers, it’s a good one.
When it comes to the absolutely teeniest, tiniest thing you can do to improve your credit scores, you need to know where you currently stand. While organizing your financial information may not have a direct impact on your credit scores (sorry, scoring models don’t have a category for effort), it makes everything easier.
In order to pay balances on time, you have to know when they’re due. Make sure you haven’t lost track of any accounts or bills: Think back to the holiday shopping season and if you opened any store accounts, and don’t forget to check the mail for medical bills after a visit to the doctor. Figure out a mail sorting system. File things. Use a calendar to mark due dates. It’s not the most enjoyable activity, but it’s an important one.
There are dozens of free tools available to make personal finance easier. On the organization front, automatic bill payments are wonderful. You can set them up for most things, whether that’s credit cards, student loans or utilities. Even if you’re paying an individual — like a landlord — you can often arrange recurring online transfers with your bank.
You can often customize how much you pay, whether it’s the statement balance or a set amount, but you should make sure you have enough money to cover the payment. If a large, unexpected purchase, like a car repair or emergency healthcare, means you put more on a credit card during a billing cycle, make sure to make necessary adjustments to prevent overdrawing your connected account.
This can be especially helpful if you’re trying to pay down credit card debt and the payment amount stays the same.
“Put your credit cards on autopay and stop using them,” said Gerri Detweiler, director of consumer education for Credit.com. “You know each monthly payment will get paid on time, and there won’t be any late payments, and your debt will continue to decrease, which helps your utilization.”
Look at that: two steps toward better credit scores in one action. Utilization (how much you use of your available credit) is the second most-important factor in credit scoring, after payment history.
You can see the factors that affect your credit scores using free tools like the Credit Report Card, which breaks down the five components of a credit score and how well you perform in each of them. You’ll get a letter grade from A to F in payment history, credit utilization, credit age, account mix and inquiries.
Getting organized is great, but you have to follow through. If you set up automatic payments, make sure you don’t spend the money in your checking account on other things. If you have arranged a manual payment, by dropping off cash or sending a check, do it early. Paying a day late may not seem like a big deal, but late is late, and late is bad.
If you’re in a situation where money isn’t coming in on a regular schedule, make sure you save part of the paycheck when you get it. The importance of an emergency fund can’t be stressed enough, because one thing you can predict about the future is that you still have bills. You need to prepare for that.
As long as you’re making payments on time and living within your means, your scores should improve. In other words, don’t do anything to jeopardize those good habits.
“Only open new credit when you need it,” said Anthony Sprauve, senior consumer credit specialist at credit scoring company FICO. “Don’t open new credit because you’re buying something at a store and you’re going to get 10% off a new dress or a suit.” Not only will inquiries ding your credit scores, opening a new credit account may tempt you to spend money you shouldn’t.
Speaking of unnecessary spending: Rein it in.
“The thing that seems extremely obvious is to stop spending on things you don’t need,” said Rod Griffin, director of public education for the credit bureau Experian. “If I see something and I really really want it, I walk away from the store and wait 24 hours, and quite often I never go back.” The same thing applies to online shopping. Close the window and come back later if you decide you need it. It sounds like a no-brainer, but small actions like this help over time, Griffin said.
If you take anything away from these tips for improving your credit, let it be this: “Paying every bill on time every time, no exception,” is crucial, Sprauve said. “Payment history is the most important factor.”