How Do I Improve My Credit Score?
What is a credit score, why does it matter and how can you improve yours? Let’s take a closer look.
Credit scores explained.
Your credit score is a measure of your ability to pay back the money you borrow. The higher your score, the more “creditworthy” you are considered by lenders. A high score could qualify you for lower interest rates and more favorable loan terms, which could save you a substantial amount of money over the life of a loan.
Typically, credit scores range between 300 and 850. The numbers do matter: A score of 650 might qualify you for a credit card, while a 720 score may make you eligible for preferred interest rates on a mortgage. So what’s your number? You can request a copy of your credit report from the three credit bureaus that monitor credit scores: Equifax, Experian and TransUnion.
It’s important to note that your credit score may differ widely among the three credit bureaus. So you should request credit reports from each regularly. For example, you could order a credit report from one every four months. That way, you would have reviewed your credit score from all three credit bureaus over the course of a year.
Once you start receiving your credit reports, make sure they’re accurate and report any errors to the credit bureaus. Mistakes do occur: a 2013 Federal Trade Commission study revealed that one in four consumers had errors on their credit reports.
How to improve your credit score.
Pay your bills on time: Your payment history is the largest part of your credit score (35%). So the more you pay on time month after month, the higher your score will be.
Don’t “max out” your credit: The percent that you use of your available credit is very important (it’s about 30% of your credit score). The less you use, the higher your score. One way to avoid “maxing out” is to request higher limits from your credit card companies.
Keep old accounts open: About 15% of your credit score is based on the length of your credit history. Be sure to regularly use older credit cards, so they don’t become inactive or are closed.
Be consistent: Suddenly making lower payments or charging more than usual on credit cards could indicate that your financial situation has changed, which could affect your score.
Limit credit inquiries: Each time you apply for credit, your credit score dips slightly.
Above all, stay out of financial trouble: Avoid bankruptcy, foreclosure, tax liens or other civil judgments and accounts in collections. All can lower your credit score.