Top Tips for Improving Your Credit Score
Even for those consumers who already have a good credit score, there are things that you can do to further improve your credit. In all reality, there is no such thing as credit that is “too good” or a credit score that is “too high.” Generally, even little things that you do to raise your score will help out. knowing what can improve your credit score, what could hurt it and which things are most important to think about can be very helpful.
Most people have a credit score, which can be very important as you try to get a loan or credit. Having no credit score is about the same as having a bad credit score. Even though you have not defaulted on any loans or payments, you have not proven that you are a good risk, either. So, it is important that you establish credit, and make sure that you keep your credit score as high as you can, so that you can show lenders that you are worth the risk when it comes time to get a loan—whether it is for a car, a home, or some personal reason.
Keep in mind that having a better score than someone else is not necessarily the goal, but, instead, your credit goals should be having a score that falls within the good, high or superior range, if you want to have the best chance of success when applying for credit. Here are a few tips that will help you to improve your credit score, whether it is seriously low or you are just trying to get a few more points to get you into the next level.
Find Out Your Credit Score First
Before you try to improve your credit, you should actually find out what the number looks like. Generally speaking, there are three major credit bureaus, Equifax, Experian and TransUnion. Each of the credit scores that you get from these companies may differ by a few points, and this is to be expected. Don’t be alarmed if you see three different numbers! When you get your credit report, review it thoroughly to make sure that all of the credit history that is listed on there, current and past, is correct and is indeed your credit. Mistakes are more common than we would like to think, but they do happen. If you find any discrepancy in your personal information or credit history, contact the credit bureau to find out how to go about changing it to be accurate.
Review Old Credit History and Close Accounts
If you have a long credit history, then the chances are high that you have some accounts listed on your credit report that you no longer use. Take the time to make sure that all of your accounts that are listed as open are ones that you do actually want to keep open. Then, contact the companies that you no longer wish to have open credit with, and close the accounts. This typically has to be done in writing. Having open accounts can adversely affect your credit, because, in theory, a bank could view this as potential debt if you were to suddenly max out that credit card. Old open accounts are often store credit cards or old lines of credit that you probably no longer use, so clean up your credit report by closing these accounts for good, and it will reflect on your next credit report that you closed the account, paid in full. This looks very good on your credit report.
Focus on Paying Off the Highest Interest Rate Debt First
When trying to improve your credit score, it can be helpful to pay off some of your debt. Creditors weigh your debt-to-income ratio very seriously when considering whether or not to lend you money. A wise way to lower your debt is to decrease the amount of debt that you are paying a high interest rate on. Since interest is essentially a fee that you pay to borrow the money, you probably want to pay the lowest fees that you can. Paying down your highest interest debts is a good way to do this. When your high interest debt starts to drop, more of your money will go toward the actual debt, rather than toward the interest, and you will start to see the amount of debt that you have go down. This is also what banks like to see, as it will improve your debt-to-income ratio substantially. The highest interest rates are typically found on revolving credit accounts, particularly store credit cards. Those who want the highest credit scores should avoid these kinds of accounts!
Improve Utilization Ratings
While this sounds pretty fancy, utilization refers to the amount of money that you owe in comparison to the amount that you could potentially owe, should you max out all of your credit. Having a low utilization rating is obviously better than a high one—but, keep in mind that banks don’t like to see that you could potentially build up large amounts of debt quickly by charging on open credit cards. So, there is definitely a balance here that needs close attention. Opening up new credit cards just to make your utilization look lower is not exactly a good idea! You should only have enough credit for what you need, and what you could potentially pay off, should you max them out. Too many people, even those with great credit, find out the hard way how easy it is to get in over their heads with credit debt.
Monitor Your Credit
There are many different companies that will provide credit monitoring, to let you know on a regular basis when your credit score changes or when any changes occur to your credit report. This can be a valuable service, and is often fairly inexpensive. This is a great way for you to monitor your credit on an ongoing basis. Many of these services can also help to quickly identify which items listed on your credit report may have the most negative, or potentially negative, effects on your credit. This can help you to know which things to pay off as quickly as possible, or which accounts to close, and where you should be focusing your energy as you try to improve your credit score.
If your credit score is already good, or even in the superior range, improving it is definitely possible, but dramatic improvements may be unlikely. However, for those with lower credit scores who are looking to bring them up, these tips can have significant effects in a short period of time, if you are diligent about trying to improve your credit.