Tips to Improve Your Credit Score
A good credit score can open many doors for you. It may be a door to a new home or automobile, and getting the best rates for the loans associated with these purchases and any other lines of credit you apply for. A writer for Quizzle said, “Having a good credit score is like having the world’s best coupon book for all of life’s major financial transactions.” Unfortunately, many Americans struggle with low credit scores and are in the dark about how to turn it around. So, whether you’ve let too many late payments slip through and need to repair your credit, had a financial breakdown and need to start over or don’t have any credit at all, here are some tips to improve your credit score.
Check Your Credit Reports
Request your scores: You can’t fix your credit score if you don’t know how bad it is. First, request copies of your credit score and reports from all three of the major credit reporting bureaus (Experian, Equifax and TransUnion). Each American is entitled to one free credit report from each bureau per year. Visit AnnualCreditReport.com for more information.
Look over all of the information and compare reports, make sure to flag any information that is dramatically different than the other two reports. An error may be holding you down, but if there aren’t any errors, late payments or other mistakes may be to blame.
Dispute the errors: While you’re researching and flagging, be sure to dispute any errors you come across. If you are currently in a dispute with a creditor you can make a note on your credit report to explain the situation.
Pay Your Bills on Time
Pay all of your bills on time: Late payments are a huge hindrance to your credit score since payment history makes up roughly one-third of your credit score. Be sure to make paying your bills on time a priority; if you’re forgetful, use your bank’s auto-pay feature or set reminders on your phone for when the bill is due.
Only charge what you can pay in full: This is a great rule of thumb to keep your finances in line and make sure you aren’t digging yourself further into debt without increasing your income. Carrying a balance for months will hurt your score, and will also mean you’re paying more interest overall.
Do the right things consistently, and over time you will see your score increase.
Use Credit Wisely
Only use a small percentage of your available credit: Try to use less than 30 percent of your credit limit on each card since credit utilization is the second largest piece of your credit score. If it rises above 50 percent, your credit suffers.
Don’t apply for too many lines of credit: It’s a sneaky little trick that many department stores like to make “20 % off if you apply for our credit card and qualify, and 10 % off just for trying.” Each time you apply for new credit, your credit score will take a hit. You chip away about three to five points each time, so be sure to limit those applications.
Don’t get rid of the credit cards: Put them to good use by charging small purchases to keep them active and paying the balance off. When you close a credit card account you decrease your credit limit, which impacts your credit utilization. If you are going to close credit accounts, avoid closing your oldest account. The longer your [good] credit history, the better your score.
Pay Down Debt
According to Credit Sesame, the rule of thumb is, “Your debt, not including rent or mortgages, should be no more than 20 percent of your monthly take-home pay. And, if you’re carrying credit card debt, it could be holding your credit score down.” The sooner you pay down your debt, the more financially free you’ll be. Start by paying up any past due bills and staying current with them. Then move onto paying off the credit cards and loans with the highest interest rates.
Increasing your credit score and working toward financial freedom requires work and discipline, but the end result is worth the effort. If you are still overwhelmed and need extra help, you may consider working with a credit repair company.