Recovering from financial hardships? Here's how to improve your credit

We've all been there: A relative falls ill and requires intensive care. Your employer goes under and needs to lay you off. These kinds of situations can set you back financially, making you wonder how to improve your credit

Thankfully, there are several ways you can build good credit, even if you're bouncing back from hard times. 

Lower your credit utilization ratio

If you're not familiar with this term, credit utilization ratio refers to how much of your available credit you're using. It's expressed as a percentage. So, if you have $10,000 in available credit on a credit card and you're using $2,000, your credit utilization ration is 20 percent. 

Use your credit card to buy inexpensive items. Use your credit card to buy inexpensive items.

If you're using a high percentage of your available credit, this could negatively affect your credit score, because it indicates that you're close to maxing out your credit card. So, try to keep your credit utilization ratio under control. 

Helpful tip: Reserve your credit for regular expenses that don't cost a lot. For instance, you could only use your credit card to pay for gas or food. 

Get a nontraditional score 

You could also look into obtaining alternative credit solutions, which provide a better picture of your creditworthiness. Essentially, FICO only gathers data on:

  • The length of your credit history
  • Past payment behavior
  • The amounts you've owed
  • New credit 
  • The diversity of your credit portfolio

In contrast, nontraditional credit reports also include information regarding your monthly payment habits. Specifically, they factor in data pertaining to your utility and internet bills, and rent payment habits. 

But how will alternative credit data improve your credit score? Think of it this way. You may, by traditional standards, have a not-so-great credit score based on your credit card bill history. However, if you regularly pay your utility, internet and phone bills on time and in full, it paints a complete picture of your financial situation.

The only problem is that FICO doesn't take these factors into account, which is why many underbanked individuals sign up with PRBC. Within 15 minutes of signing up, you'll receive your new PRBC credit score. 

"Your payment history makes up 35 percent of your FICO Score."

Set payment reminders 

Pay off your credit card balance before the bill is due. Your payment history makes up 35 percent of your FICO Score, so doing something as simple as settling up on a consistent basis can help improve your credit. 

Understandably, if you use your credit card sparingly and on small items, it could be easy to forget to pay the bill. To fix this issue, schedule monthly reminders for yourself. There are plenty of tools to help you do this, such as Google Calendars, Microsoft Outlook, or a standard calendar app on your smartphone. 

Seek more affordable alternatives for regular expenses 

After getting an alternative credit score, you need to make sure you can still pay those monthly bills on time. If you fail to do so, your nontraditional score will drop. Car repairs, injurious accidents and other issues can arise at any time, and could impact your ability to pay monthly expenses. 

One way to stay on top of expenses is to shop around for more affordable choices. For example, if you're paying $60 a month for a gym membership, but don't use the pool and other amenities it has to offer, search for a less expensive alternative with the equipment you do use. 

Things may be tough, but by taking the right steps, you'll be on your way to improving your credit score. Be patient and persistent!

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