Improve your credit score. Live a better life

Buying a house has long been a part of the American dream. For many people, it is the American dream. They save 20% for a down payment, get a mortgage, and then pay off the mortgage as the house appreciates over 30 years. Eventually, they sell the house and move to Florida… where they buy a much cheaper house and live off the difference.

Few people can pay all cash for their first home, which means this version of the American dream is only accessible if you have good credit. So, today, we’re going to talking about how to improve you credit score.

• Step one is to keep track of your credit score, even if you don’t like doing it.

This is easier than ever. A lot of credit cards will give you your score for free. I think two of my three major credit cards do that. And I pay attention to my score, even though it’s excellent and there’s no reason it would drop significantly unless I stopped paying my bills.

Still, you never know… even if your credit is excellent, you should keep an eye on it in case something weird pops up. Identity theft is not uncommon, and the sooner you know about it, the sooner you can address it.

Say somebody opens up a fraudulent account under your name, defaults, and then it goes into collection. That sort of thing can trash your credit score. Then you go to buy your dream house, only to find your credit was wrecked because of identity theft. Then you’re screwed.

So, set up a way to check your credit score once a month, either through a credit card or a reputable app.

• Step two to is to pay your bills on time.

That means all of them. Period. Sounds obvious, and yet, some people really struggle with this.

One missed credit card payment, one missed car loan payment… any hiccups like that stay on your report for seven years. That one missed payment will also hit your credit score by 70 to 100 points, and it will take your score 18 months to recover.

The easy way to address this is to set up automatic payments. You can’t miss a payment if you’re automatically paying your bills on time. Just don’t overdraw your checking account because then the payment will bounce.

• Step three is to ask for a credit increase.

Debt utilization—or how much of your credit limit you’re using—makes up around 30% of your credit score. So, a quick hack here is to ask for a credit limit increase on your credit cards.

Sorry, that does not mean charge more. The point is to increase your limit so you’re using less of the credit available to you.

Or you could pay off the balance weekly rather than monthly. That’s something you could set up to happen automatically, and it would keep your balance really low.

• Everyone should take these steps, whether they’re looking to buy a house or not.

I know—some personal finance experts say you shouldn’t worry about your credit. Just eliminate all your debt and never borrow money again. Then you won’t need a credit score.

Yes, it’s good to eliminate debt. But going off the grid and ignoring your credit score leaves you vulnerable. Life is long and uncertain. You might run into an emergency or some unforeseen circumstance and need to borrow money. And if you’ve let your credit score deteriorate, you could be up a creek.

Jared Dillian