Article By: Georgette Miller, Attorney at Law
Your credit score determines if you will qualify for a loan and the amount of interest you will be required to pay on that loan. It is also used sometimes to qualify you to rent an apartment and has been used in hiring decisions for certain industries.
A higher credit score is critical to your financial health. Whether your score is low or you simply want to qualify for better interest rates, these tips can help you raise your credit score.
WATCH CARD BALANCES
One of the major factors considered when calculating your credit score is the balance you have on your credit cards compared to the amount you have available. Most experts agree that your balance should be 30 percent or less than the credit balance on the card.
Even if you pay your card in full each month, some credit card companies use the balance on your statement as what they report to the credit reporting agencies. If you use your card often throughout the month, ask the issuer if you can pay several times each month to keep the balance vs. available credit lower.
ELIMINATE SMALL BALANCES
Known as nuisance balances, small balances on a number of cards can lower your credit score. The reason for this is that the number of cards you have with balances is also computed into your score.
Charging $50 on one card and $30 on another will not improve your score and may actually lower it. Instead, pay those small balances off and select just one or two to use for credit.
DO NOT REMOVE OLD DEBT IF IT IS GOOD
If you have an older account that has been paid off for some time, leave it on your credit report. Negative items will hurt your score, but they will disappear from your report after seven years.
Most issuers will not remove valid bad debt information from your report even if you request them to do so. However, good debt, or credit you have paid on time regularly, can improve your score. The longer your record of on-time payments, the better your score will be.
SHOP FOR BIG PURCHASES IN A SHORT TIME SPAN
Each time you apply for credit, your credit score drops slightly due to inquiries placed on your credit file. These inquiries can remain on your report for up to one year. However, there are three types of loans that do not drop your score as long as you apply at multiple lenders within a short time of each other.
If you are looking for a new car, for example, apply for the loan through several lenders all in one week. Send mortgage application inquiries out within one month of each other. All of those inquiries will be counted as just one inquiry and your credit score will not drop as significantly.
PAY ON TIME
This is probably the most critical aspect of improving your credit score. Paying bills on time each month is the single most important factor in your credit score. It is important to remember that it is not only credit cards that can report to credit reporting agencies.
Doctors, hospitals, even library fines can appear on your credit report, especially if the company turns the debt over to a collection agency.
Check your credit report often to be sure that there are no surprise late accounts appearing on the report and quickly reach out to the creditor if there is a negative report that unexpectedly appears on your credit file.
If you are in the process of applying for a mortgage or in the market for a new car, don’t do anything that could put your credit score in jeopardy of dropping. Charging more than you normally do or suddenly paying less on your debts may send a warning to potential creditors that you may be at higher risk for extending credit.
Other items that could cause a lender to ask questions are taking out large cash advances or using a credit card in a manner that could indicate future financial stress, such as a pawn shop.
Don’t obsess over your credit score constantly. Although you should keep an eye on your score and check quickly if there is a significant drop, your score is most important when you are about to make a big purchase, such as a home or car or if you will be applying for financial aid for a child heading to college.
At a minimum you should review your credit report on an annual basis. More preferably you should review it every 90 days to avoid being the victim of identity theft and to stay on top of your score.
Your credit score can be very important, especially if you are considering the purchase of a new home, new vehicle or will soon be sending a child to college. These tips can help you improve your score and help you qualify for lower rates when you do need to apply for credit.