Understanding your credit score can be confusing. Knowing how to make your score better can also be hard to comprehend, and frustrating.
Still, it’s important to try to make your score the highest it can be. Follow these easy tips to start improving your credit score:
A higher score will make it easier to qualify for credit when you need it. While you still may be able to borrow with a low credit score, you will likely pay a much higher interest rate with a low score than you would with a high credit rating. Also, your score can determine how much you will pay for insurance and possibly other expenses.
Here are seven things you can do to improve your credit score. Which of these steps can you take right now?
1. Pay your bills on time. (Duh, right?) This is the most obvious step. A history of slow payments or delinquency will have an impact on your score. If you’ve had some debt problems in the past, don’t despair. You can repair your credit. Even if you’ve had serious delinquencies in the past, a recent history (24 months) of on-time payments carries weight in credit decisions. In time, your new good payment habits will start to carry more weight than the bad. If you need help repairing your credit, seek out a good credit counselor for help.
2. Use credit cards. (Huh? What?!) You’ve probably heard stories about how credit card usage has destroyed someone’s credit. But if you manage your credit card use responsibly, having credit cards loans that you pay on time will raise your score in most cases. Your score benefits from showing that, yes, you use credit and that you use it responsibly, meeting your repayment obligations. A person with no credit card tends to have a lower score than someone who has managed their credit cards responsibly.
3. Keep your credit card balances low. Here’s the trick with credit cards: it helps your score if you use plastic for purchases, but your score suffers when you maintain high outstanding debt on those cards. A good rule of thumb is to try to keep your balances at 35% or less of the total approved credit line available to you. If you have a credit card with a $5,000 limit, keep your outstanding balances in the range of $1,500 to $1,750 or lower. Maintaining a capacity to borrow more on your approved limit is a benefit to your credit rating.
4. Pay down debt. Consolidating your credit card debt or spreading it over multiple cards will not improve your score in the long run. The most effective way to improve your credit is by slowly paying down the amount you owe.
5. Don’t close an account to remove it from your record. Perhaps you no longer use the first credit card you opened. You might think you should clean that off your credit report by closing the account. Don’t do that. The length of your credit history partly determines your credit score. That first account holds value as it ages. It also adds a credit line that helps keep a low capacity ratio as described in strategy #3 above.
6. Don’t apply for or open multiple accounts too quickly. Taking on a lot of debt in a short time will impact your score in a couple of ways. First, your credit report will include a higher number of credit inquiries. This indicates that you may be piling on debt and your score will reflect that risk. Secondly, the simple act of opening several new accounts will lower the average age of your existing accounts which is something your credit score also considers.
You don’t have to shy away from getting new credit. Just don’t pile on a bunch of credit cards you don’t need. You also don’t need to worry about shopping for credit to get the best deal. If you’re applying at multiple places for credit and do so within a focused time, credit bureaus will recognize a search for a single loan, and your score won’t be harmed.
7. Check your credit report for accuracy. Inaccurate information on your credit report can be cleared up. If you see something wrong, contact the original lender and the credit bureaus.
Following these steps will result in a higher credit score. It takes time, but it’s worth it in the long run.
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