5 Ways to Improve Your Credit Score
12, 2013 Â·
By David Bakke, Money Crashers
In todayâ€™s world, your credit score can have a significant effect on the financial
aspects of your life. Your credit history determines
loan and credit card interest rates, can raise your insurance premiums, and can even be a determining
factor for getting a job.
Therefore, itâ€™s very
important to take steps to achieve and maintain a healthy credit score, and to
check up on it frequently to ensure that it is accurate.
1. Pay Your Bills on Time
Your bill payment
history accounts for roughly 35% of your credit score, and includes payment of
credit cards, auto loans, mortgages, and utility bills. Recent late payments in
your credit history have the greatest impact on your score, so if youâ€™ve missed
a payment before, avoid repeating this costly mistake!
If you want to boost your credit score, do whatever it takes to pay your bills in a
timely manner every month. Use online reminders to help you remember to pay
your bills, and inquire at your bank or check with your credit card company to
see if they offer email reminders about due payments.
Many companies also
allow customers to change the due dates for monthly bills, allowing you to
streamline all of your bill payments into one or two occurrences per month.
2. Review Your Credit Report on a Timely Basis
Inaccurate or outdated
information can appear on your credit report at any time, and this can
significantly hurt your credit score. Identify and correct errors on your
credit report quickly using the following steps:
- Request a Free Copy of Your
Credit Report. You can order your free
credit report online from AnnualCreditReport.com. This is the only website that offers free credit
reports, and provides access to reports from each of the three major
credit reporting agencies. Once you sign up on the site, you can stagger
when you review each of your three credit reports, reviewing one report
every four months or so. You can also receive a free credit report if you
are denied credit.
- Review Your Credit Report. Once you obtain a copy of your credit report, review
your contact information to make sure it is correct. Look for inaccurate
information, outstanding balances, and late payments. If you have an open
account with the company that reported the late payment, you can call them
and ask that they remove it from your credit report. You may also notice a
number of inquiries on your credit report, which often merely reflect
credit card companiesâ€™ efforts to market their products to you. If any
inquiries seem unusual, research to find out why they are being made on
- Check Carefully for
Bankruptcies and Charge-Offs.
Review the details for any bankruptcies and charge-offs on your credit
report to ensure their accuracy.
- File a Dispute. If you find errors or incorrect information on your
credit report, file a claim to dispute and fix the errors with the
3. Never Close Old Lines of Credit
Many people believe that
consumers should close old or unused lines of credit to improve credit scores.
Actually, it may be more advisable to keep these lines of credit open.
A large portion of your
credit score (approximately 30%) is determined by the amount of available
credit you are using. If you have a lot of available credit, but only use a
small portion of it, you can improve your credit score.
If you have a few credit
cards that you no longer use, donâ€™t let them languish â€“ instead, use them
occasionally for a few small purchases and pay them off in full each month. If
you donâ€™t use the cards, the issuers may reduce your credit lines or close your
accounts. Closing a credit card
hurts your credit score.
4. Open New Credit Judiciously
Based on the previous
point, you might think that opening multiple new lines of credit will improve
your credit score. This isnâ€™t true, however, as opening several new lines of
credit in a short period of time will negatively affect your score.
New credit accounts for
about 10% of your score, and credit reporting agencies constantly monitor your
activity, so open new lines of credit judiciously. If you find good deals on
cash back credit cards or credit card sign-up bonuses, tread lightly.
5. Carefully Mix Credit Lines
The mix of credit lines
accounts for about 10% of your credit score. If you have a mix of credit cards,
loans, and other types of credit, you can positively impact your score. Walk
this line carefully so that you do not overextend yourself, however.
In addition to paying
your bills on time and maintaining lines of credit, other factors play a role
in determining your score. For instance, the length of time you have had credit
also accounts for about 15% of your credit score.
Over time, as you build
and establish your credit, your score will improve. With careful, regularly
scheduled awareness and monitoring, you can improve your score and enjoy all
the benefits that come with a solid credit history.