Most Americans have a credit score of around 625, and that’s a long way from perfection. If yours is less than perfect, you can take steps to improve it.
Having a low credit score can ensure you miss out on some great financial opportunities. Low scores mean high interest rates, higher insurance rates and fewer financial options being made available to you. If you have a low score, then you may even find that the utility company requires a deposit from you.
Those with poor credit are usually the people who are not able to afford the extra costs that are associated with a bad score. It’s going to be to your benefit to have a good score, as the odds are stacked against people who have a bad one.
You can improve your score, however. You don’t have to be stuck with that poor score forever. It’s going to take some time and some real effort and discipline, but it’s possible for anyone to pull off.
Get to Know Your Number
Before you can do much of anything, you first need to find out what your credit score is.
Your credit card company may provide a free credit tracker. This isn’t quite a credit report, but it can be useful and it’s a great place to begin. Many cardholders will also let you see your FICO score if you log into your credit card account.
Bills Should Be Paid on Time
Your credit score is made up primarily of your payment history. That’s 35% of the score – more than any other factor. That should translate to a strong reminder to everyone that paying bills on time is vital for a good score.
That can be difficult to do, however. If you have some trouble paying bills on time or at all, then you need to talk to your creditors and see if you can work anything out. Medical bills may be negotiated down. Student loans may be able to be deferred. Credit card companies may forgive some of your debt and lower your rates. Many creditors will be willing to work with you, so take the time to ask and see if something can be done.
Get a Better Credit Utilization Ratio
Your credit use counts for 30% of your overall credit score. It’s best to keep that usage under 30%, and even lower is better. So, if you have $5,000 in available credit, you want to be using less than $1,500 of it at any given time.
You don’t want to think of the 30% as a magic number. If you can get it lower than that, you will help your score even more. 10% or less is considered practically perfect.
You want to think of 30% as your upper limit. Always aim for a better number, but keep that as your maximum for those times when you need it. If you keep your credit utilization ratio to zero, then you hurt your credit history and thus your credit score. You need to be using your credit to make it show up on the report. Just use it smartly.
How you use your credit and your overall credit report serve as a means of identifying your spending habits and financial savvy. If you pay on time and keep your accounts low, then it shows that you are responsible with your money. You also want to pay down your debts. This gives you more credit to work with and improves your credit utilization ratio. It also decreases the amount of interest you pay, which will save you money and perhaps give you more to pay toward those bills to reduce them further. Anytime you have spare cash, you should be
putting it toward your debts.
When you have more than one credit card, you can work on paying off the card that has the highest interest rate. Keep up minimum payments on all your other cards, though. This will help you prioritize your debt and lower the amount of money you have to pay over time.
You can use another method, if you like. This is paying off the smaller debts first and then concentrating on the larger ones. The advantage to this method is it builds some momentum for you to propel yourself forward and it decreases the number of debts you have to worry about and pay attention to.
Whichever way you choose, just be sure you try to get those debts down to less than 30% of your available credit. You can try to negotiate for lower rates too. If you ask your creditor for a lower rate, they may oblige you, particularly if you have a good payment history with them. They can say no, but that’s it. There’s no downside to just asking for a lower rate and you have so much to gain.
Get more credit to work with.
While you are calling your credit card company, talk to them about increasing your credit limit. This is really simple and is granted more often than you might think. If you do get your limits increased, you don’t want spend that extra available credit. You want to use the extra credit in your favor to improve your credit utilization ratio and your credit score.
Not all credit reports will look on these tactics in the same light. Experian, for example, says that getting a new credit card may not boost your score. If you get a card and then don’t use it, it may not help your score at all. If you have several different accounts with credit you are not using, then it will help your credit mix, however, which improves your credit score by showing you are financially able to handle multiple types of accounts.
Keep All Those Old Cards Open.
If you have older accounts, then they contribute toward your credit age. The oldest cards you have are the most important ones to keep open. They show that you have been using credit successfully for a while. It’s okay to have multiple card accounts open, if you have a good history on them and you can keep your spending under control.
If you close out one of your accounts, but you have some outstanding debt somewhere else, then that looks bad for your overall score, because it gets rid of a good factor and helps to highlight a bad one by shortening your report.
Once you have a card paid off, just keep it open but don’t bother to use it.
Keep Credit Accounts Active
Having a credit score shows how responsible you are. Just paying off cards and then not using them doesn’t show that you can maintain good financial practices.
You don’t want to get rid of them once you pay them off. You need to be using your credit.
The credit score doesn’t account for your net worth. It looks at your payment history and your credit lines and other things that are reported to the credit bureaus. The credit score system can’t tell you any difference between two people who have a very different net worth. So long as they pay their bills on time and have the same amount of credit available, they look the same to them. It’s an unforgiving system and you have to work within its confines if you want to have a good score. If you cannot ensure that your payments are verified by the credit
bureaus, then you aren’t helping yourself when you make payments.
Sometimes, it pays to use your credit card to buy something you could have paid for with cash.
If you have managed to pay off all credit card debts, then that is excellent, but you still need to watch your credit score. If it starts decreasing, you may need help fast, and it can be useful to have a good score and some available credit. If you have a low cost recurring expense, then you can attach that to that credit account you have paid off and just keep it active. Pay that off as soon as it is charged and you will be golden.
You should make sure you are using your oldest card for this function. That ensures that the oldest card stays active and gives you a longer credit history, which improves your credit score.
Examine Your Credit Report
You can will find a free copy of your credit report on AnnualCreditReport.com. This site won’t sell any of your information to other parties and it gives you a free report once a year. After you obtain your report, take some time to look it over carefully. What you are looking for first of all are mistakes. There may very well be some and they can hurt your credit score. You can dispute any mistakes you see with the reporting agency you got the report from. You can also dispute the problem with your creditor.
If you see any delinquencies on the report, then you need to handle those right away. Try to fix them as soon as possible through your creditor. Your creditor may be able to remove them for you, if you make a payment. Tell them you are trying to clean up your credit score, and they could be sympathetic. Just be sure you take measures to keep your credit report appearing as a true reflection of your current state of financial affairs.
If you try to dispute small delinquencies, such as with medical bills or utility bills, then you may be able to get rid of it even if you really did pay late on it. The creditor isn’t likely to want to argue over such a small dispute and the fix can make a big difference on your credit report.
Make Sure All Accounts Are Reporting
You might have some accounts that are not being reported to the credit bureaus. If these are accounts that you have in good standing, then that is a missed opportunity. You can call up those creditors and ask them to start reporting. They might not be able to, but if they can, then you can really help out your credit score.
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