How to Increase Your Credit Score
Even disciplined spenders can find that their credit score is less than ideal. Miss only a couple of payments or spend over your credit limit and you may find yourself having to deal with a low credit score. This can hamper your efforts to get a good rate on a mortgage (or to even be approved for a mortgage) or to purchase a car using a loan.
Luckily, for those who find that their score is less than ideal, there are some relatively easy fixes.
- First of all, it is important to know your credit score. People who are concerned about their score can request a free report at www.AnnualCreditReport.com. It is also important to know other things, such as the credit limit that you have on each of your credit cards and the interest rates of each card. If possible, you can transfer balances from high interest cards to low interest cards in order to pay off your balances more quickly (see #2 below). However, this may cause your score to lower temporarily (see #6 below).
- Obviously, the best way to increase your score is to eliminate or at least pay down your credit card debt. This is not always possible, but getting your balance to at least 50% of your credit limit can stop your score from free-falling. Having a balance that is less than 25% of your total spending allowance is ideal.
- If you have a family member or trusted friend with a good credit score, ask them to add you to their credit card account as an additional user. Once you are on the account and a card is issued to you, your score should increase. It is not even necessary to use the card (or even have it in your possession for that matter). All you have to do is have the card issued to you.
- Open a new credit card and pay off the balance every month. If you remember the rules in #2 and are disciplined enough to pay off your balance every month, this could be a good idea if you only have one or two cards already. This new card can keep you on the road to a good credit score. However, having too many credit card accounts open can hurt your score, so it is best to close credit card accounts if you have more than three or four open at one time.
- Make all your payments on time. Late payments are one of the biggest causes of decreased credit scores. Of course, there are other variables, but this one is the easiest to control. If you are having trouble making payments, talk to your creditors about changing the due dates. After recent struggles with home foreclosures and loan defaults, most banks are eager to work with their customers to ensure that they are able to pay off their loans.
- It might be tempting to consolidate all your cards into one account through balance transfers. This can be helpful for paying off balances if you can get a card with a low introductory rate. However, if the balance is more than 50% of your credit limit, then the balance transfers will not help your credit score in the short term, and, if you pay down the balance slowly, it will hurt your score in the long term as well.
- When you have a good credit score, don’t try to raise it any more. If you reach a mark of 650 or 700, stop and simply keep your balances below 25% of your credit limit and make your payments on time each month.
A good credit score is, like it or not, a necessity for making future purchases that require a loan (such as buying a house or a new car).
Author Byline:
Mark Rodgers has been in personal finance for 4 years, he currently blogs about sites online to fine online insurance quotes and where to find savings online.
