Consumer Comeback Blog

The Twin Imperatives for Improving Your Credit Score

If you want to be able to buy a house, a car or get approved for a department store credit card, you need to have a decent credit score. Knowing what your credit score is can help you know what to expect when it comes to interest rates for those kinds of transactions. And, if you’re like most folks, you’re interested in knowing what you can do in order to improve your credit score.

Improving your credit score really isn’t all that complex. That doesn’t mean it isn’t difficult, of course. Improving your credit score really comes from following two basic principles.

Imperative #1: Pay your bills, on time, every time.

The most important factor in your credit score, which makes up around a third of the score, is how you pay your bills. Pay every bill on time, every time. Missing even a single payment can drop your credit score as much as 100 points, especially if you don’t have much credit to begin with.

This sounds easier than it is. Sometimes, you don’t have enough money. Sometimes, you just forget. But if you want to improve your credit score, the most important thing you can do is just to pay your bills.

This might require getting an extra job to make ends meet. It might require setting up reminders with your bank, or using automatic debits to make your bill payments automatically. Whatever it takes, you need to pay those bills on time.

Imperative #2: Use your available credit sparingly.

The next most important thing that the credit agencies look at when computing your credit score is the ratio of credit to utilization. If your credit cards are maxed out, you’re going to have a lower credit score. Ideally, you’ll use somewhere between 10 and 30 percent of your total credit.

This means paying off your credit cards regularly. It means that, if you make a purchase that maxes out your credit card, you need to send in a payment the very next day. Being able to keep that ratio down means not using your credit.

There are, of course, other issues that impact your credit score, such as how many credit accounts you have, and how long they’ve been open. However, if you can follow these two principles you’ll be far ahead of the game, and well on your way to improving your credit score.

Photo via deneyterrio