One of the most frustrating experiences is being turned down for a loan because of your credit score. Your ability to borrow money isn’t the only thing affected by your credit score, though. Insurers might use your credit score to determine your premiums. A low score could mean that you pay more in premiums. Others, including Internet service providers and landlords, might be interested in your credit score as well. Knowing how to improve you credit score can help you save money in the long term.
Indeed, more and more, your credit score is being used to make judgments about your ability to handle your finances. If a low score seems to indicate that you are irresponsible, it will be difficult for you to take advantage of the best offers and loan terms in the world of finances. If you are wondering how to improve your credit score, here are some things you can do to boost your financial reputation:
Pay Down Some of Your Debt
One of the items that shows up on your credit report is how much debt you have. If you are using most of your available credit, it counts against your credit score. You can look as though you are in a better position by paying down some of your debt. Keep your credit card balances to less than 30% of your credit limits. This way, you’ll appear more able to handle the credit that you have.
Get Current on Your Bills
If you have fallen behind on some of your payments, catch up. Your credit report contains a record of each month’s payment history. When you are on time each month, it shows. When you miss a payment, your credit report reflects the number of days you are behind. If you have some accounts you are behind on, bring them up to date so that your on-time payments can begin overwhelming the negative items. The longer you go without missing a payment, the better off you’ll be — and the higher your credit score will be.
You should understand, though, that paying off a collection account won’t remove it from your credit report. It can remain on your account for years. It’s better, though, for the account to be shown as paid off, rather than still open.
Maintain Good Credit
More on Credit Score
Once you have managed to improve your credit score as much as you can, it’s up to you to maintain a good credit score. The truth is that excellent credit is achieved only after months — or years — of consistently credit-positive behaviors. One of the best ways to maintain good credit over time is to make on-time payments. Be sure to pay on time and in full each month. You can set up payment reminders, or have your bills automatically deducted from your account. That way, you don’t have to worry about paying late.
Also, be aware of the length of your credit history. Your credit score takes into account how long you have had credit, and how old your accounts are. Don’t close older accounts because that can reduce the length of your credit history — and drop your score. Be wary, too, of opening new accounts. Too many newer accounts can also damage your score. Be selective of the accounts that you open, and carefully consider which accounts to close.
Fix Errors on Your Credit Report
Your credit score is based on information reported in your credit file. In the U.S., you are entitled to one free credit report each year, from each of the major credit bureaus, by visiting www.annualcreditreport.com. You are also entitled to a free credit report whenever you are rejected for a loan based on information in the report. In Canada, you can write in to receive a free credit report by mail. And, of course, you can always pay a fee to access your credit file.
When you locate a mistake, go through the process of disputing the error so that it is fixed. When negative errors are repaired, your credit score often benefits.
With a little planning and responsible behavior, you can improve your credit score, and find a variety of opportunities opened up to you.
Miranda is freelance journalist. She specializes in topics related to money, especially personal finance, small business, and investing. You can read more of my writing at Planting Money Seeds.