Your credit report and your credit score are extremely important these days. Your credit score will stay with you wherever you go. Your credit score is going to come up when it is time to apply for a mortgage, apply for a car loan, or even to get a job. If you learn how to check your credit report and you know how to improve your credit score, you will be in better position to obtain lower interest rate loans and credit cards as well as have more financial opportunities than someone who isn’t. The simple keys to a good credit score include the following.
Pay your bills on time.
This is the key to good credit, plain and simple. The longer you pay your bills on time with no delinquent payments the better your score. If you pay some on time and others slip past 30 days, get organized and pay them all off on time. After just one month of this your score will improve. Keep doing it!
Check your credit once a year. Correct mistakes.
Review your credit report for any errors and correct glitches that may not be accurate. Reviewing your report once a year does not take much time and is free. This is good protection against identity theft, too. It is also a good idea to review your report a several months before you think you will be applying for a loan. If you do find a mistake if can take 30 days or longer to correct it.
Keep outstanding debt low debt low.
Try to use any credit accounts and your credit cards less. When you can, pay them off every month. Keep your outstanding balances in credit cards and home equity lines of credit as close to zero as you can. The bigger the difference between your total credit limits and the credit balance you carry, the better your score will be. A good rule of thumb is keep outstanding credit as a percent of available credit below 25% of your credit limit.
Pay off your debt – don’t move it around.
The ratio of your credit card balance to your credit limit is a key factor in your score. Closing out an account and transferring the balance to chase a lower interest rate will increase this ratio, which will lower your score. Instead of moving credit card balances to lower rate cards, try to pay them off. Call your credit card company and negotiate a lower rate instead. If the credit card is not cooperative it may well be worth any sacrifice in credit score to lower your credit card rate with a balance transfer.
Keep credit cards with a zero balance open.
You have a higher rating because of having the ability to access more money. Don’t close unused credit card accounts near a time you will be going for a new loan. Remember your score is based on formulas and one is the ratio of your credit limit to your debt balance. Closed accounts don’t really go away and will only raise the ratio. Contrary to what you may have heard, don’t close old, paid-off accounts.
Don’t open new accounts when applying for a loan if possible.
Avoid opening a lot of new accounts over a short period of time, especially if your credit history is relatively short to begin with. If you have a short credit history or very few accounts, opening a new credit line may lower your score since you don’t have a proven track record.
Use Your Credit
It is important to use your credit and pay everything off in full every month or at least quickly. This shows how you handle credit. Having it and not using it will not improve your score.
Remember: the better your score the more money you save by being extended lower interest rates when you borrow.