Over 90% of lenders review your credit score when
deciding to approve you for a loan or other type of credit arrangement. Is
yours helping or hurting you? Here are five ways you can improve it.
Pay Your Existing
Debts on Time. 35% of your score is based on your payment history.
Additionally, many debts, even cancelled credit cards that aren’t in use
anymore, can stay on your credit report for up to 12 years. That’s a lot of history!
Make it a priority to pay all your monthly debt commitments on time.
Monitor Balance
Owed Versus Credit Limit. 30% of your score is based on how much you owe.
It also matters how much you owe on credit cards relative to the credit limit.
Both amounts are disclosed on your credit report. Although no hard and
definitive numbers are published, it’s usually agreed that keeping your balance
below 20% of your credit limit will improve your score.
Refrain from
Obtaining New Credit Cards or Loans. 10% of your score is based on how much
new credit you’ve opened recently while 15% is based on the length of your
credit history. The average age of all your credit accounts is calculated and
factored into your score. Every time you open a new credit account, the average
age decreases, which adversely affects your score. Try to use your existing
credit accounts to make purchases instead of opening new ones. Although it’s
tempting to take that 18-month interest-free deal at the furniture store, it
might not be in your best interest depending on your financial goals.
Check Your Credit
Report for Accuracy. You are entitled to obtain a copy of your credit
report from all three agencies (Experian, Equifax, and TransUnion) for free
once a year. The website www.annualcreditreport.com
is the only site authorized by Federal law that can provide this service for
free. Beware of other sites as they will usually require a credit card number
and you signing up for some kind of trial subscription service that will bill
you if you forget to cancel it before the trial period ends. Every year, check
all three reports to ensure all information is accurate and, also, YOURS.
People do make mistakes. All it takes is one digit entered incorrectly and
someone else’s negative item can show up on your report. The website also provides
tools and resources to help you correct mistakes on your credit report – free
of charge.
Paying Off
Balances in Full is OK. There seems to be a constant debate as to whether
paying credit card balances in full helps your credit score or not. What helps is
having activity in general, so a history can be established and tracked. It’s
perfectly OK to use a card every few months and then pay it in full the next
month. You’re creating a consistent and positive track record and not paying
interest in the process…a win-win. Paying interest has no bearing on your score
so if you can avoid it, do it.
