Improving Your Credit Score

Improving Your Credit ScoreMost of us use credit for major expenses whether it’s to pay for a college education, buy a vehicle, or secure a mortgage. Many people also use credit for smaller purchases, such as appliances or holiday shopping. A summary of our credit history, including loans and credit card charges reveals our credit score, which is what a lender will consider when determining if we qualify to borrow money.

Some of the things that factor into a credit report are amount of money owed, payment history, bankruptcies, past due accounts turned over to a collection agency, and how often you’ve applied for a new credit card or loan. The challenge is to make sure a low credit score doesn’t negatively impact your financial future. There are steps you can take to raise it.

Lower your debt
This sounds obvious, but your credit score will automatically begin increasing as you decrease your debt. If you feel overwhelmed by high balances on multiple credit cards, put together a payment plan. One popular strategy is Dave Ramsey’s debt snowball method. The well-known businessman-turned-personal finance guru suggests paying off your lowest debt first then adding payments to the next lowest debt until that one is paid off. Continue repeating the process increasing the amount toward the debt as you are paying other debts off.

Set up payment reminders
Not making payments on time is one of the biggest culprits affecting your credit score. If forgetfulness is the reason, set up reminders or automatic payments to ensure you stay on top of your payment schedule and begin rebuilding your credit.  The longer you pay your bills on time, the better to decrease the impact of older credit problems.

Keep credit card balances below the limit
How much of your credit limit you use — your credit utilization — impacts your score. A low credit utilization ratio indicates you haven’t maxed out your credit cards and likely manage credit responsibly. You can ask your current credit card for a line increase to stay further under your limit.

Don’t open new credit cards
Unnecessary credit can do damage to your score, from creating too many inquiries on your credit report to tempting you to overspend and accumulate debt. Don’t apply for new accounts just to have higher or a better credit mix — it likely won’t help improve your credit score.

Fix credit report errors
Take a critical look at your report and correct any inaccuracies. Make sure all of the credit cards listed actually belong to you. Perhaps a payment made on time was marked as late. Delinquency information older than seven years shouldn’t remain on your report.

Improving your credit score can be compared to improving fitness: it takes time and persistence. That is, there’s no quick fix. Be patient and consistent. There are benefits of a good credit score, such as qualifying for the best interest rates and terms when you borrow money. That can lead to saving thousands on your mortgage, and you’ll be closer to buying your dream home than ever.