Your credit score is important, here’s how to improve it.
Your credit score factors in your payment history, the amount of credit available to you and the length of time your credit accounts have been opened. It dictates whether or not you’ll be approved for car loans, mortgages and credit cards, and it determines your interest rates.
If you miss a bill payment, max out credit cards or have a credit account or loan go to collections, your credit score may take a dip. Here are eight tips that can help you improve your credit score.
1. Verify information on your credit report.
Every 12 months you can get free copies of your credit reports from the three major credit bureaus — Experian, TransUnion and Equifax — only at Annualcreditreport.com. Once you have it, be sure all the information is accurate. Errors could negatively impact your credit score, so review everything from the most basic information like your name and address to more detailed information like balances on accounts.
2. Go directly to the credit bureaus.
Did you know with Experian adding your phone and utility bill history may increase your credit score? This additional information provides a more complete view of your payment profile to the credit agency and to potential lenders.
3. Strategically pay down your credit card balances.
The credit-scoring model generally rewards those who have used less than 30% of their total credit limit. This means if you’ve used 50% of one credit card’s total limit, and 10% of another, you may be able to increase your credit score by reducing utilization of the card at 50% to down below 30%. This reduces your credit usage ratio and can cause a positive increase in your score.
4. Don’t use up your credit limit.
About 30% of your credit score is determined by your credit utilization (the amount of all available credit you use). A good rule of thumb is to never use more than 30% of available credit. For instance, if you have a credit card with a $1,000 credit limit, you should avoid balances of more than $300.
5. Don’t unnecessarily close any accounts.
Length of credit history counts for 15% of your score. And the older the account, the more points it tacks on to your credit score because the scoring model assumes the creditor is happy with you as a customer. Additionally, closing an account that’s paid in full will decrease the amount of available credit you have which can negatively impact your credit utilization and lower your credit score.
6. Refinance your home equity line of credit.
Home equity lines of credit (HELOCs) are revolving lines of credit, and their utilization is factored into your credit score just like a credit card. If you use more than 30% of your HELOC credit limit, you will be penalized. To improve your score, consider refinancing a HELOC into a second or first mortgage.
7. Use a secured card.
If you have no credit score at all, are new to credit or have a very low score that won’t permit you to open a new credit account, then open a secured credit card that reports to all three of the credit bureaus. Keep your spending to 10% or less of your credit limit each month, and pay it off in full each billing cycle. In just a few months, you can bump up your score provided you pay your other credit accounts on time and don’t accumulate any other debt.
8. Pay your bills on time.
Payment history makes up to 35% of your score and positive payment history can take up to a year to increase your score. There’s no time like the present to start paying in a timely fashion.