5 Ways to Improve Your Credit Score
By David Bakke, Money Crashers
In today’s world, your credit score can have a significant effect on the financial aspects of your life. Your credit history determines loan and credit card interest rates, can raise your insurance premiums, and can even be a determining factor for getting a job.
Therefore, it’s very important to take steps to achieve and maintain a healthy credit score, and to check up on it frequently to ensure that it is accurate.
1. Pay Your Bills on Time
Your bill payment history accounts for roughly 35% of your credit score, and includes payment of credit cards, auto loans, mortgages, and utility bills. Recent late payments in your credit history have the greatest impact on your score, so if you’ve missed a payment before, avoid repeating this costly mistake!
If you want to boost your credit score, do whatever it takes to pay your bills in a timely manner every month. Use online reminders to help you remember to pay your bills, and inquire at your bank or check with your credit card company to see if they offer email reminders about due payments.
Many companies also allow customers to change the due dates for monthly bills, allowing you to streamline all of your bill payments into one or two occurrences per month.
2. Review Your Credit Report on a Timely Basis
Inaccurate or outdated information can appear on your credit report at any time, and this can significantly hurt your credit score. Identify and correct errors on your credit report quickly using the following steps:
- Request a Free Copy of Your Credit Report. You can order your free credit report online from AnnualCreditReport.com. This is the only website that offers free credit reports, and provides access to reports from each of the three major credit reporting agencies. Once you sign up on the site, you can stagger when you review each of your three credit reports, reviewing one report every four months or so. You can also receive a free credit report if you are denied credit.
- Review Your Credit Report. Once you obtain a copy of your credit report, review your contact information to make sure it is correct. Look for inaccurate information, outstanding balances, and late payments. If you have an open account with the company that reported the late payment, you can call them and ask that they remove it from your credit report. You may also notice a number of inquiries on your credit report, which often merely reflect credit card companies’ efforts to market their products to you. If any inquiries seem unusual, research to find out why they are being made on your account.
- Check Carefully for Bankruptcies and Charge-Offs. Review the details for any bankruptcies and charge-offs on your credit report to ensure their accuracy.
- File a Dispute. If you find errors or incorrect information on your credit report, file a claim to dispute and fix the errors with the reporting agency.
3. Never Close Old Lines of Credit
Many people believe that consumers should close old or unused lines of credit to improve credit scores. Actually, it may be more advisable to keep these lines of credit open.
A large portion of your credit score (approximately 30%) is determined by the amount of available credit you are using. If you have a lot of available credit, but only use a small portion of it, you can improve your credit score.
If you have a few credit cards that you no longer use, don’t let them languish – instead, use them occasionally for a few small purchases and pay them off in full each month. If you don’t use the cards, the issuers may reduce your credit lines or close your accounts. Closing a credit card hurts your credit score.
4. Open New Credit Judiciously
Based on the previous point, you might think that opening multiple new lines of credit will improve your credit score. This isn’t true, however, as opening several new lines of credit in a short period of time will negatively affect your score.
New credit accounts for about 10% of your score, and credit reporting agencies constantly monitor your activity, so open new lines of credit judiciously. If you find good deals on cash back credit cards or credit card sign-up bonuses, tread lightly.
5. Carefully Mix Credit Lines
The mix of credit lines accounts for about 10% of your credit score. If you have a mix of credit cards, loans, and other types of credit, you can positively impact your score. Walk this line carefully so that you do not overextend yourself, however.
In addition to paying your bills on time and maintaining lines of credit, other factors play a role in determining your score. For instance, the length of time you have had credit also accounts for about 15% of your credit score.
Over time, as you build and establish your credit, your score will improve. With careful, regularly scheduled awareness and monitoring, you can improve your score and enjoy all the benefits that come with a solid credit history.
What are some of the other strategies you’ve used to raise your credit score?
David Bakke is a contributor for Money Crashers, one of the top personal finance blogs that covers a variety of important financial topics like money management, buying and selling a home, real estate investing, and retirement.
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.