How To improve Your Credit Score

Improve Credit ScoreSaying that your credit score plays a vital role in whether you can apply to acquire further credit, obtain reasonably priced car insurance, or take out a small business loan for example is a bit of an understatement. It plays an enormous role and it is something that shouldn’t be taken lightly. In short, a credit score helps lenders and credit card and insurance companies, for example, determine the risks involved in lending a borrower/applicant money, credit, or insurance respectively. It also helps lenders and other agencies determine the specific amounts, rates, and terms and conditions to offer a borrower/applicant.

The most popular credit score that lenders use is developed by Fair Isaac & Company (or FICO for short). It’s comprised of five key elements of your credit report: payment history (such as those made on credit cards, student or auto loans, retail accounts, and mortgage); amounts owed; length of credit history; new credit; and types of credit used. FICO credit scores range from 300 to 850 — the higher the score, the less risk you represent when borrowing money. According to statistics, the national credit score average is about 692, a score that can be viewed as somewhat unsatisfactory. In fact, according to experts any credit score below 700 can use improvement; a score of 725 is more of an ideal number. With that said, this reference guide is designed to teach consumers how to maintain and increase their credit scores so that approval for loans and credit lines is much easier. To get started, consumers should first use a Credit Score Estimator to assess their credit score and request a free credit report from one of the three credit bureaus to check for inaccuracies. Correcting errors can boost your score up to as much as 30 points. If there are no errors, follow these tips below.

Pay Bills on Time

By far the easiest way to improve your credit score is to pay your bills consecutively on time. If you are the forgetful type, a simple way to make timely payments is to set up automatic payments from your bank account. Just make sure you have adequate funds so that you don’t have to be forced to pay hefty overdraft fees. But be aware that you don’t ever want to allow past due bills to get turned over to collections. According to experts, late payments that exceed more than 90 days will have the most negative impact on your credit score. And while it is true that some creditors will not always immediately report late payments and may let you slide if you make the payment soon after the due date, not every creditor is as nice and you may have to suffer the consequences.

Avoid New Credit Card Accounts

Another easy way to increase your credit score is to limit the amount of new credit cards you acquire — don’t be seduced by companies that promise “free gifts” with each application. That’s not to say that you should cancel your newer credit cards; this line of short “good credit” can help improve your overall score, just don’t go overboard and apply for multiple credit cards that you don’t need. It’s equally important that if you feel you need to cancel credit cards, then at least make sure they are not old accounts. Older accounts will be better fit at representing your established credit history and this will make your score higher. If you must take out a credit card, consider taking out a secured credit card. This type of credit card, which is designed for consumers with bad credit, will ultimately improve your credit the longer you have it open; in the meantime it will also demonstrate to creditors that you have more available credit to you.

Be an Authorized User

If you cannot get any types of credit cards because you have no credit history for example, then you can also consider asking a family member or friend to place you as an authorized user on one of their credit cards. Make sure that whomever you ask has an impeccable credit score and history. This is because although you will only be labeled as an authorized user, the entire credit history for the account you are placed on will appear on your credit report as well. If your friend or family member is apprehensive about doing this because they are fearful of you swiping their credit card one too many times, remind them that they don’t actually have to issue you a card.

Monitor Credit-Debt Ratio

Another good way to increase your credit score is to make sure that the money you owe on your credit card(s) is close to your total credit limit. According to experts, the general rule is that consumers should keep their account balances at or below 25%. So for example, if your account balance is $250, but your limit is $1,000 that means your credit-debt ratio is 25%. In Charge Debt Solutions provides step-by-step directions on how to calculate your credit-debt ratio. If you owe more than 25%, you should try to pay your balances off. Always aim to pay off debt/balances, do not try to move it in between credit cards. If you struggle maintaining this ideal range because you cannot pay off the balances, you can always try and request that your creditor increases your spending limit. Just make sure that you have some self-control about putting your purchases on credit.

Beware Installment Credit

You also want to avoid applying for consumer installment credit accounts offered by various department stores, especially retail furniture, jewelry and appliance stores. These accounts lure in consumers with their “no interest for one year” promises but can ultimately do damage to a consumer’s credit score.

Honor Mobile Contracts

Lastly, you want to make sure that you abide by the terms and conditions stated in your mobile contract; if you do not you can damage your credit score a great deal. This means that if you want to switch cell phone providers before your contract is up you need to pay the termination fee. If you do not, then the wireless company has the right to collect costs and report you to credit bureaus.