Your credit score plays an important role in your financial journey. A low credit score can prevent you from getting approved for credit, whether it be a mortgage, car loan, or credit card. It can also result in you paying higher interest rates than people with more attractive scores. In some cases, a bad credit score can even prevent you from getting an apartment or a job.
So what do you do if your credit score is low? The good news is that your credit score isn’t set in stone. It’s impacted on a constant basis by your financial behaviors, and making changes now to the way you handle your finances can have a huge impact on your credit score down the road. Here are some tips for raising your credit score, and paving the way for a brighter financial future.
Check your credit reports. This is the first step you should take. You want to review your reports for errors, such as incorrect postings of late payments or inaccurate reporting of what you owe on accounts. If you find errors, you need to dispute them directly with the credit bureau that created the report.
Financial experts recommend getting a free copy of your credit report from each of the three major credit reporting agencies every year. The agencies are required by law to provide free reports to consumers on an annual basis.
The three major credit reporting companies are Experian, TransUnion, and Equifax. The trio has a central website – www.annualreport.com – where you can place your order. Or you can call 1-877-322-8228. There is also a request form that you can fill out and mail to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. Visit https://www.annualcreditreport.com/manualRequestForm.action to obtain the document.
Pay your bills on time. Sounds simple enough, but it’s surprising how many people tend to let due dates for bills slip past them. But timely bill payments are one of the most important elements of a good credit score. So keep those payments up to date, month in and month out. If you find it difficult to remember paying your bills on time, you can either schedule recurring payments online through each of the companies you receive bills from on a monthly basis, or you could set up recurring online bill payments through your bank.
Pay down balances. According to financial experts, this has the greatest impact on your credit score. Credit utilization – which is the amount you can borrow versus the amount of debt you’re carrying – accounts for 30 percent of your credit score, the experts say. So the more room you have to borrow, the better off your credit score is going to be. Paying down your balances can also have the fastest impact on your score. So it just makes sense to focus on whittling away those balances.
On a related note, you can pump up your score by getting rid of nuisance balances – small balances that you have on several credit cards. One of the factors used in determining your score is the number of cards that have balances. If paying off those smaller balances isn’t realistic for you, another option is to consolidate your debt by moving your balances over to the one or two credit cards you have with the lowest interest rates.
Open a new credit account. This will increase your total outstanding credit line, which should improve your credit utilization. And if the account you open is different than other accounts you have – say one for a retail store – it reflects a “credit mix.” This is a term used by credit bureaus to indicate whether you’re capable of handling different kinds of accounts.
But stick to opening one account at a time, not several. If you decide to open more than one, that will lead to multiple inquiries on your credit reports, which can cause your credit score to go down.
Don’t be so quick to cancel credit cards you’re not using. At first thought, it might sound like a good idea to close out a credit card account that you’re not using. However, keep in mind that any available credit you’re not using counts toward that golden “credit utilization” ratio we mentioned earlier. Canceling a credit card that doesn’t have a balance could actually hurt your credit score, because doing so will reduce the amount of available credit you have.
But remember, if you’re not actively using a credit card you should still check its balance frequently to ensure it hasn’t been compromised. The sooner you notice and report suspected fraudulent activity to your credit card provider, the better your chances of a speedy resolution.
Overall, the most important thing to remember is that it’s never too late to start repairing your credit score. Making the right financial choices now can help you enjoy the benefits a higher credit score will provide down the road.