If you are concerned about your credit, then you are most likely wondering how to improve your credit score. Your credit score in large part determines your credit worthiness to those lenders that are considering you for a loan or line of credit.
Improving your credit score is an important personal goal that can save you hundreds, even thousands, of dollars each year in interest. It also gives you access to a line of credit that you may use to get the things you desire. The main thing to remember is that you must use that credit responsibly.
Steps to Improve Your Credit Score
While your credit score is based upon information gathered from your credit report, it does not take into consideration every variable from your credit report. There are, however, a few specific things you can do to help improve your credit score.
- Pay Bills On Time: Paying your bills on time is the number one way to improve your credit score. Paying the bills or loans that you have agreed to pay by the time you agreed to pay them is the foundation of credit. If you keep up with your bills without missing payments or being late, you can improve your credit score ultimately to the point of having excellent credit.
- Catch Up On Overdue Accounts: Every one gets behind on their bills on occasion, but the goal is to catch up as soon as possible and to limit the times that it does happen. Your credit score will consider how long it has been since you were behind on a bill or a loan. So if you get behind, the sooner you catch up the sooner you will begin to see your credit score rise.
- Keep Your Credit Card Balances Low: Your debt to credit line ratio is very important in the calculation of your credit score. Your credit score takes into consideration the balances on your credit cards and loans. The more you pay down on your principle balances, the more likely you are to see a better credit score. Just because you have the line of credit does not mean you should use all of it.
- Don’t Transfer Debt; Pay Off Debt: Your overall debt is a factor in determining your credit score. Just because you have transferred the debt to lower interest credit cards or personal loans, does not mean that you have improved your credit score. It is a good idea to transfer balances to lower interest credit lines, but don’t think it will help you in the short term on your credit score. Also, if you owe the same amount of money but to fewer lenders, this may actually lower your credit score.
- Check Your Credit Regularly: This is a helpful tip for two reasons. First, it keeps you on top of what is going on with your credit and will allow you to see how your actions affect your credit score. Secondly, it allows you to see if there is any wrong information that may be negatively impacting your score. It is recommended that you check your credit every 6 months to 1 year. Remember, your credit score and credit report are two separate items. Check them both regularly.
- Only Open New Credit Lines When Necessary: Don’t fall for the myth that having lots of accounts in good standing will boost your credit score. Lots of inactive accounts can actually hurt your credit score. Also, having too many accounts can make things hard to keep track of and may cause you to be late with or miss a payment.
Steps NOT To Take To Improve Your Credit Score
Sometimes not doing something can result in positive results for you credit score. There are a lot of myths out there as to how you can easily raise your credit score. These “don’ts” will remove some of these myths and let you know what you shouldn’t do as a short-term solution to raising your credit score.
- Opening Too Many New Accounts: If you open up too many accounts too quickly, you can lower your average account age. This is a component in figuring your credit score and lowering this average can lead to a lower credit score. If you don’t need the line of credit, then don’t get it.
- Closing Unused Credit Cards: Closed accounts will still be considered in your credit score, so closing them only results in you lowering your average account age. If you have a good reason for closing the account then you should, but don’t fall for the myth that closing unused accounts is a short-term boost to your credit score.
- Bouncing Checks: This should be a no-brainer, but you should keep this in mind so that you keep closer tabs on your checking account. You should balance your checkbook each and every month immediately after you receive your monthly bank statement. A little organization goes a long way toward preventing mistakes that can cost you valuable points on your credit score.
- Allowing Accounts Go to Collection: Once an account goes to collection you are going to take a serious hit on your credit score. Even if you pay off the debt immediately after it goes to collection, it will not be removed from your credit record. It will still strike a severe blow to your credit score. Any threat by a lender to send your account to collection should be taken as a serious manner and handled before it is too late.
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