How to increase your credit score
1st Jan 2015 Managing your Money
Many people apply for a loan, credit card or mortgage and don't know the impact their credit score can have.
So here I'm going to show you how to increase your credit score easily by following simple steps everyone can follow.
Find out what's dragging your score down
Your credit report contains data about you and your borrowing history that influences your credit score. If you have a good credit score, it's easy to assume that everything in your report is equally good. But that's not always the case. A problem on just one account can cause a low score or result from multiple issues.
To figure out which negative items are affecting your credit score, you need to consult your credit report and look for the following:
- Late payments: This is the most common credit-scoring red flag because lenders want to know they're going to get their money on time. The minimum amount of time you're allowed to be late before it hits your score varies by lender. For instance, some creditors may wait as long as 60 days to report late payments, while others will start dinging consumers in just seven days.
- Unpaid collections: These are debts that you've stopped paying, but that still appear on your credit report as unresolved disputes between you and a creditor or bill collector. You may have already paid off a debt, but if the creditor has not updated its records, it will continue to show as an unpaid collection on your report.
Understand the credit score range
The credit score range is based on a 300 to 850 scale. The higher your score, the better. The closer your score is to 300, the worse it is. Each lender sets its own standards, but generally speaking, you want a score above 700. If you have a FICO score of 700 or above, you are considered to be in the top category for borrowers, and lenders will typically offer you the best terms and conditions for loans, credit cards and other lines of credit.
The higher your credit score, the lower your interest rate will be for any type of loan such as a payday loan or line of credit you may apply for. Scores that fall into the good range (above 680) are generally considered "good" scores. Scores in this range indicate that you have been responsible with your credit card and loan payments and that you have a pattern of paying off your debts without too much trouble. You may find that lenders are more willing to work with you when there are problems with your debts than they would with someone whose scores fall below 680. The "very good" range (between 740 and 800) indicates that you pay all of your debts on time and that creditors find it relatively easy to collect payment from you whenever.
Pay your credit card balance
Paying down a balance can benefit your credit score because the credit card companies report both the amount you owe and the amount of available credit. That could result in better interest rates and an increase in available credit. Paying down a large percentage of a high balance can signal to potential lenders that you're responsible and likely to pay back any money they loan you.
Your available credit includes all lines of credit, not just those with balances. But since the amount being used is typically listed next to each line item, this feature makes it easy for you to see which accounts are using more of their limit than others.
Keep the same card for a long time
It's not always easy to stick with the same credit card for years. Newer, shinier cards come along that promise big rewards or generous sign-up bonuses. And if you're trying to build up your credit score, you might think about applying for several cards in a relatively short period of time because new credit looks good on your report.
The trouble is, every time you open a new credit card account, you'll take a small ding on your credit score as long as it remains open. So for the best possible score, be content with that older, more straightforward card and reap the rewards it offers.
The key to having a high credit score is simply to make all of your payments on time. Doing so will improve your credit score, but it will also help you develop the habits necessary for good financial literacy. Moreover, if you're feeling motivated and want to take this further, you can partner with those who want to improve their credit scores as well. This can be especially beneficial if you know someone with a lower credit score than you because working together should allow for faster results. In either case, by making all of your payments on time and developing better habits, you should see a positive change in your credit score and your overall financial health.
