A lot can ride on your credit score: rental applications, auto insurance rates, interest rates, mortgage and more. Many people forget how important this number is. Don’t be one of those people. Stay ahead and learn some helpful hints to improving your credit score.
What is a credit score? This is a 3-digit number that measures how creditworthy you are. Scores range from 300-850. Lower scores indicate that you might be an unreliable borrower. Higher scores indicate that you are reliable in paying back money. High scores can save you tons of money on interest and loans over time.
You are allowed one free copy per year from each of the three credit bureaus–TransUnion, Equifax, and Experian. You can pull them all at once or pull one every 4 months to see how your credit varies throughout the year. Make sure there are no errors because any mistakes can affect your score.
Now that you have the basic information, consider these steps in improving your credit score:
- 35 percent of your credit score comes from payment history. This means it is vital to pay your bills on time. The longer you wait, the more it affects your score. Paying bills on time and in full can keep your credit utilization low and help you avoid debt.
- About 30 percent of your credit score comes from credit utilization. Credit utilization is the percent of available credit you are using. The lower the better. People with their rate under 20% seem to have better credit scores than those over 20%. An easy way to lower this would be to request a higher credit limit from your creditors.
- About 15 percent of your credit score comes from the length of your credit history. Consider this before closing old accounts because closed accounts in good standing can stay on your report for about 10 years. Once they do drop off your report, however, it will lower your average credit history age and your score with it.
- Lower your debt to credit ratio by using cash, eliminating unnecessary expenses, and tracking your spending. Don’t ever break your budget. Avoid debt by only using what you have. If you still need more, find a hobby or interest you can work with to increase cash flow.
- Use your old cards for a purchase every now and then because they can be declared inactive and lower your score. Or opt to consolidate new cards into older cards if your service offers this without changing the total credit limit. This can help your credit utilization.
- Limit hard inquiries because they do lower your score a little bit. Applying for new accounts is just one way to receive a hard inquiry. Renting a car, getting a TV or Internet account, or opening a checking account can all incur possible credit inquiries.
- Paying off student loans on time is noted by credit bureaus and will show that you are a reliable borrower. This goes for other payments as well. Always pay your creditors on time.
- Derogatory marks can really hurt your credit score, so do everything you can to avoid them. These marks include bankruptcy, foreclosure, account in collections, tax lien, and other civil judgments.
Remember that a higher credit score means more money to save. Be smart in how you manage your money. If you have to borrow money, pay it back on time. Don’t use what you don’t have. Follow these simple steps and you should stay in the clear.
