Are you in the market for a mortgage or car loan but consistently turned down or only offered loans at high interest rates? Your credit score is the likely culprit.
Credit scores range from 300 to 850, and a good score is above 700. The higher your score, the better the chances of obtaining a loan and receiving better rates and terms. Don’t get discouraged if you discover your credit score is lower than anticipated. The following steps can help you increase your score:
1) Review and clean up your credit report.
Examine your credit report for mistakes. If there are errors are your credit report, it will negatively impact your score.
The information on your credit report is used to calculate your credit score and oftentimes contains errors. Some of the more common errors include incorrect account balances, late payments incorrectly listed, and debts that belong to someone else.
You are entitled to a free credit report once a year with each of the three credit bureaus (Experian, TransUnion and Equifax). Dispute inaccuracies as soon as possible with the credit bureau. Request a free copy of your credit report by visiting AnnualCreditReport.com.
2) Pay your bills on time.
Thirty-five percent of your credit score depends on your payment history. Delinquent and late payments can have a negative impact on your score. Collection accounts also have a major impact on the score. One way to ensure you never miss a payment is to sign up for online banking and automatic bill payments.
3) Pay down credit card balances.
Another 30 percent of your credit score calculation is based on credit utilization. Your credit card balances should never exceed 30 percent of your available credit line. This indicates you’re using credit wisely and not living off of your credit cards. Paying off your credit card balance every month will gradually increase your score.
Another factor impacting your score is credit history, which provides an indication of your creditworthiness. Closing older credit cards you no longer use is reasonable, but canceling too many in a short period of time could actually lower your credit score.
4) Increase your existing credit card limits.
Credit scoring models compare your available credit to the total amount of credit used. Maxing out your credit cards suggests probable financial problems.
Consider the amount of credit you use. If you regularly charge $3600 with a $4,000 credit limit, you are spending 90 percent of your available credit. Increasing your credit limit will reduce that utilization rate and should improve your credit score.
There are many websites that will provide your credit score, like Credit.com. Others will want you to sign up for their service. Choose the option that best fits your needs. Having this information can help you understand what lenders and other businesses are able to see.
Your credit score should be a work in progress, and attention to detail will help you achieve the score you are have in mind. This will help keep your hard-earned money in your pocket rather than giving it to those with whom you do business. For more details about credit scores, visit myFICO.com.
Want a little more help? Check out our eLearning module on CREDIT SCORE AND REPORT