Tactics to Improve Credit Ratings (D)

Delivered February 26th, 2020. Contributors: Sheila L. and

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Tactics to Improve Credit Ratings (D1)

To increase credit, Americans can gradually open new accounts, avoid store credit cards, avoid joint credit products, watch out for scammers and follow the 60-day rule. More information on these tactics can be found in the attached spreadsheet. 
Summary of FindingsAmericans, especially millennials, should open new accounts gradually instead of opening multiple accounts at the same time, as the latter implies that they need a lot of money which they do not have.
Store credit cards should be avoided because they have skyrocketing interest rates after promotional no-interest periods. Instead, millennials should first look at credit unions and banks, which offer low interest rates.
Joint credit products that are paid for together with other people should be avoided. If the contract is signed under one person's name, any other party defaulting in their payments can damage that person's credit. It is important to only sign contracts where one has total control of the payments and does not have to rely on other people.
Scammers usually find different ways to steal a person's information online. It is important to watch out for them because once they steal a person's information, they can damage one's credit by charging accounts or opening new ones.
Payments should not go 60 days past due because while some lenders might not report balances that are 30 days past due, they are highly likely to report two back-to-back missed payments.

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Tactics to Improve Credit Ratings (D2)

To increase credit, Americans can brush up on credit basics, get credit cards, pay student loans diligently, understand how much they can afford to borrow and get student credit cards. The requested information on the tactics has been presented in the attached spreadsheet. 
Summary of FindingsIn order to improve their credit scores, millennials need to first understand how credit works. According to a survey by the Consumer Federation of America and VantageScore Solutions, millennials have the lowest level of knowledge on credit as compared to older generations. They should therefore brush up on the basics of what credit is and the different ways in which they can improve it. 
 Having credit initially is essential in order to improve credit. For people who want to improve their credit but do not have a credit card yet, a logical first step is to get a credit card.
Student loans are reported to credit bureaus, so it is important to pay them on time every month in order to build one's credit.
In order to understand how much one can afford to borrow, the debt-to-income ratio should be taken into consideration. This ratio is calculated as all monthly debt obligations divided by gross monthly income. According to CFPB, consumers with higher debt-to-income ratios are more likely to find it hard to make monthly payments. 
Student credit cards are a good way for millennials and Gen Z'ers to build their credit without having a robust credit history. These cards, however, usually have high interest rates and low credit limits.  

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Tactics to Improve Credit Ratings (D3)

To increase credit, Americans can use the debt snowball technique, pay off debts using credit card consolidation, take out installment loans, pay more than once in a billing cycle and have an emergency fund. The requested information about the tactics has been presented in the attached spreadsheet and a summary has been presented below. 
Summary of FindingsMillennials can build their credit by using the debt snowball technique to pay off debts. In this technique, the lowest balances are paid off completely while keeping the minimum payment on other balances. This method motivates a person to keep paying off their debts as they are able to see their balances paid off faster. 
Another way in which millennials can build their credit is through credit card consolidation, whereby they take out personal loans or use balance transfer credit cards to repay their existing debts. With personal loans or balance transfer cards that have a lower interest rate or more favorable repayment terms, the debt can be repaid faster as more money is used in paying down the principal. 
Good credit can also be built by taking out installment loans, which are usually easy to obtain, and making the agreed-upon payments on time. These include personal loans, auto loans and mortgages.
Paying more than once in a billing cycle, if one can afford it, is a good tactic because it lowers one's credit utilization, thus improving the credit score.
Creating a fund for rainy days, which holds about six months of one's income, provides a means to pay bills in case of a rough financial patch and keeps one's credit score healthy. 