Goal: A Higher Credit Score
When it comes to credit scores, the higher the better. Ranging from 350-850, your score can impart serious consequences on your financial life including what type of interest rate your credit cards carry, whether or not you’re approved for loans, your car insurance rate (in most states), and whether or not you pay deposits on standard utility accounts. In other words, your score matters.
Having said that, if you find your score lacking, there are concrete ways to make a positive change. It might take some time, a heavy dose of discipline, a bit of restraint, and changes to some bad habits, but if you follow my suggestions you could raise your score by several points.
What would that mean for your finances? Well, the lower your score is, the more impact an increase will make, which means even if you have an unenviable score and you’re mired in despair convinced nothing will make a difference, well, that couldn’t be farther from the truth. Have I convinced you yet?
Let’s look at the game plan.
- Scour your report for errors and fix any you find. This is an obvious and easy first step because there’s no reason to suffer from any negatives on your credit report you had no fault in putting there. By law you’re entitled to one free report a year from any of the three major credit reporting agencies. If you find an error, contact the bureau that supplied the report and follow their instructions to make needed corrections.
- Pay your bills religiously and pay them on time. When it comes to keeping your credit accounts in good standing, nothing accounts for a bigger share of your score, as in just one missed payment can knock you down by up to 100 points. Yikes! So, do what you can to make sure you never miss a payment. Setting up automatic payments, either through your bank or with the creditor directly, is your best bet to keeping yourself on track.
- Steer clear of your credit limit. The more you spend, the higher your balance creeps up and the lower your credit score slides down. In fact, experts recommend keeping your balance at no more than 30 percent of your credit limit. This is particularly important for the health of your credit score because your credit utilization, after payment history, is one of the most important indicators of your score. So, if you’re above that mark, map out a way to get to 30 percent over time and you’ll be rewarded with a higher credit score for your trouble. In fact, paying off your maxed-out cards might be all you need to do to increase your score significantly.
- Request credit limit increases. Before I launch into this, let me be clear that this is not an invitation to spend more money. Instead, this is a step you might take if you find you can’t easily or quickly lower some of your higher balances to the magic 30 percent mark. In other words, this is a quick fix that will afford you more unused credit, will lower your credit utilization rate and increase your score. If you have to resort to this method, take care not to add any more debt to your balance and still work as hard as you can to pay it down or, better yet, completely off.
- Pay off credit cards, but don’t close the accounts. Once any of your balances reach zero, you may be tempted to close the account for good, eliminating any temptation to ever charge on the card again. While I understand the urge, resist. Instead, shred the card or destroy it in any way that renders it unusable, but leave the account open. Having a zero balance and all that unused credit will work to push your credit score higher. Closing the account will only eliminate the unused credit from your credit report, making your debt-to-credit ratio even worse and sending your score into a nosedive. Plus, the older your accounts, the higher your score, so no need to close a credit card account that adds valuable history to your report.
- Put the nix on unnecessary spending. That’s right. If you don’t need it and especially if you can’t afford it without resorting to using a credit card, then just say no.
- Mix it up. Having a variety of lines of credit – think car loans, a mortgage, personal loans, etc. – demonstrates your overall responsibility managing credit. This will also serve to increase your score over time. Of course it goes without saying this range of credit lines won’t do you any good if they’re not in good standing so make sure to mind the minimum amount due and be prompt with payments.
We at American Credit Foundation understand how a low credit score can impact not only your finances but your sense of well-being. Getting it under control and taking steps to improve will serve you well in the long run, and boosting your score may take less time than you think. If you have any questions please contact us. We are waiting to help in any way we can.