Improve Your Credit Score
There are many ways to improve your credit score. Some suggestions are simple, most you’re probably already doing, and there are a few facts that you may not have taken into consideration before now.
Pay your bills on time. All bills that are associated with money lending, including your mortgage, car loan, student loans, and credit cards, affect your credit score. Pay all of them on time, every time. If you have been late on payments, get caught up (pay off your late fees as well as the bills) and get in the habit of paying before the deadline. Over time, your credit score will improve once again.
Pay down your debts. Bigger debts hurt your credit score. However, it’s not about a set number of what is a “big” debt, it all depends on your available credit limits. For example: if your total amount of available credit among all of your credit cards came to $20,000 and you currently have $4,000 of credit card debt, your debt to credit ratio would be at 20%, which is reasonable in the eye of creditors and your credit score would reflect positively on this fact. But if your total available credit is $5,000 and you have $4,000 in debt, then your credit score will be hurt because you have an 80% credit to debt ratio. You need to keep your debt to credit ratio low. However, no debt is the best.
Do not close credit card accounts. First of all, this will reduce your available credit. In the example above, if you had $20,000 of available credit, but you closed one account that had a limit of $5,000, your available credit would be reduced to $15,000. If you did this with that $4,000 of debt, you wouldn’t have a favorable 20% credit ratio — it would become 27%. This would cause an immediate negative decrease in your credit score. Secondly, when you close an older credit card, you reduce your credit history. A card account must still be open for it to be continually reported to the credit bureaus and be counted with your credit score. Showing a history of responsible credit use is important for keeping a good credit score. The longer the good history, the better, so do not erase your good history by closing older accounts.
Don’t open multiple new cards. There are different reasons for wanting a new credit card: It may be to do a balance transfer to reduce interest rates on debt, it may be to take advantage of a new rewards program. Whatever the reasons are, make sure not to do them all at once. Opening several new credit cards within a short amount of time (for example even 3 new cards within 1 year is considered a lot) will mark you as a credit risk. Research has shown that people that open a lot of new accounts quickly are often in need of money that they cannot currently repay, which is why the credit bureaus report negatively on this activity. This is why this is calculated into your credit score, to mark you as a bad candidate for a new account. If you are interested in a new credit card, try to limit your new accounts to one per year or less. That is infrequent enough to not hurt your score.
Open one new card. While it will hurt your credit score to open multiple cards within a short frame of time, if you haven’t opened a new card in more than a year, a new account can actually improve your score. It may cause a small and temporary decline in your credit score, but within months it can improve it. This will increase your available credit, thereby reducing your credit to debt ratio. Better yet, choose a card with a good offer on a balance transfer and move your current debt to it. While a balance transfer won’t improve your credit score, it will help you get out of debt quicker by reducing your interest rates so your payments reduce the principle faster. Reducing your debt will indeed improve your credit score. And remember, with this new card, don’t rack up more debt! That will only hurt your credit score.
Use that old credit card. Credit card companies are sneaky, and one thing you have to look out for is their “use it or lose it” tricks. If you have a credit card that you’ve had for years, but you also haven’t used it in years, the credit card company may stop reporting on it, therefore reducing the value of that account within your credit score. If you use it, they have to report on it. A simple purchase of a few dollars paid in full by the end of the month, and repeated a few times a year, is all it takes to keep a credit card active within the credit reports.
Check your credit score. You can check your complete credit report for free once a year at your bank or any other bank in your area. Yes, there are other sites that offer a free credit report, but too often they try to coax you into signing up for a service that costs money, whereas this site will not (it is the site established directly by the three major credit reporting agencies to comply with the law requiring them each to offer one free credit report per person, per year). Read carefully through your entire report. If you see anything amiss, you need to report it in order to repair your credit score. You should report anything listed that isn’t yours. Items that will negatively affect your score that you should report include: late payments, account in collections, or any other derogatory claim. If any of these things appear on your report, but are not true, you need to report it. Items that will not hurt your credit score include: misspellings of your name, incorrect employer information, or an inaccurate address. If these discrepancies do appear on your report, you do need to get them fixed, but they will not improve your credit score.
Improving your credit score starts as simply as using your credit wisely and paying your bills on time. However, as you can tell it easily gets more complicated than that. But now you are empowered with the information you need to get your credit score back in good standing.
