As the temperatures rise outside, it’s a good time to think about how to raise that credit score.
Is it worth the trouble? Absolutely.
Good credit gives you lower rates on loans and auto insurance, determines whether landlords will rent to you, affects whether you pay deposits for certain services and can even be a deciding factor in whether you’re hired.
Use these strategies to boost your credit score this summer:
1. Open a credit card
If you don’t currently have a credit card, open one before your summer trip.
You may associate credit cards and debt with bad credit, but it can be quite the opposite. Having no credit card at all makes it very difficult to build credit. It’s the responsible use of credit cards, such as carrying a low balance and paying your debt on time, that help raise your score.
Besides, many offer travel rewards that can actually make your future vacations cheaper.
2. Be smart about applying for credit cards
If you have no credit or bad credit, don’t apply for a card that indicates it’s for people with excellent credit.
Each time you apply for a credit card, your credit report receives a hard inquiry, which can have a minor yet negative effect on your score. For this reason, only apply for one card at a time, and aim for one you will qualify for so you don’t have to apply for more.
Don’t aim for the fanciest AmEx just yet. You will likely need a basic card without rewards. After some time, your credit will improve and you will be able to qualify for the more prestigious cards.
3. Use your card for summer vacations
Whether you already have a credit card in your wallet or have just applied for your first one, a summer vacation is the perfect time to make use of it.
Whether you travel within your state or across the globe, use your credit card for your day-to-day traveling expenses (though try not to spend more than you had already saved.) It can help you keep track of your vacation spending, and if you have a rewards card, all of these transactions will help you rack up major points.
As a side benefit, credit card transactions are safer than cash or debit transactions when traveling.
4. Pay your balance right away
Remember only you can prevent out of control credit card bills.
When you get home, pay off the bill in its entirety if you can to avoid interest payments. Never pay just the minimum balance. Why?
“The best way to reduce the interest owed on a credit card is to pay off the balance as quickly as possible,” according to Wells Fargo. “Otherwise, it can take many years to pay off even a small credit card balance if you only make minimum payments.”
This means when you’re on vacation, you can’t look at the credit card as free money. You have to view it as a short-term loan you will repay immediately or as soon as possible.
5. Keep it up once you’re back from the beach
Once you return from your trip, keep using your card on occasion.
According to credit bureau Experian, it’s important to have active credit history: “Some credit scoring systems cannot calculate a score if no balance is reported to the credit history within the last six months. In other systems, there must be a balance update or inquiry within 12 months, and others require a balance update or inquiry within 24 months.”
This simply means having a credit card sitting in a drawer doesn’t do much good. Aim to use it at least once every six months, and then pay it off.
6. Consider a loan
If you prefer not to use a credit card, another way to establish an active line of credit is to open a loan.
Go to your bank or credit union and open a small personal loan. You can put this money toward summer travels or even home improvements — just try to pay it back as fast as possible to minimize interest payments.
As with credit cards, regularly paying your bill on time helps raise your credit score. Note that missing payments or making late payments will lower your credit score.
If you don’t qualify for a traditional personal loan, U.S. News & World Report recommends credit builder loans, which are small loans commonly found at credit unions and community banks.
They work a bit differently than traditional loans. Rather than getting the money upfront, the publication says, “The money is placed into an interest-bearing account with the credit union. The consumer makes payments monthly, and after a year or two, the loan is paid off and the funds, plus interest, are released to the consumer.”
This isn’t ideal if you need money for a trip now, but it’s a good solution if you want to build credit over time without relying on a credit card.
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