Your credit score is becoming an increasingly important factor in your financial life. A high score can help land you a job, get better terms on your loans such as lower interest rates and also obtain insurance and consumer goods such as mobile phones. But millions of Americans have lowered their credit scores due to various factors such as late payments and bankruptcies. However, there are several things that you can do to improve your score over time, and most of them are not very difficult and require only self-discipline and common sense.
- Make Your Payments On Time – This is probably the single most important thing you can do to raise your credit score. A third of your credit score comes from your payment history, and late payments of any type will immediately lower your score. However, a long history of timely payments will periodically raise it, thus giving you an excellent rating for the largest variable in the credit score computation formula.
- Use Less Credit Than You Have Available – Those who can keep their debt level to about 25% of their available credit will receive a higher score than those who use a greater percentage of their available credit. Lenders want to see that you can reduce the overall amount of debt that you carry over time. Those who can lower their balances are therefore favored over those who max out their credit cards on a regular basis.
- Build Up Your Credit History – Obviously, this takes time, but those who have no credit history are not much better off than those with bad credit. You can start to improve your credit score by applying for a secured credit card that requires an initial deposit that equals the amount of credit to be extended. This collateral eliminates risk for the lender and allows the borrower to begin making regular timely payments. But retail accounts such as utilities and cell phones will also show up on your credit report, so making those payments on time will help you as well.
- Avoid Bankruptcy – This is just about the worst thing that can show up on your credit report. Virtually any alternative to bankrupcty is probably a wise one if you are looking to improve your credit score. If you have a friend or relative who is willing to loan you money to help you get your affairs in order, then even a high interest loan may be cheaper for you in the long run than bankruptcy, because having a bankrupcty on your report will prevent you from getting many jobs and loans that would otherwise help you move forward in life. Those who are forced to declare bankruptcy should file under Chapter 13 instead of Chapter 11 if possible, because the former type of bankruptcy represents a repayment plan, whereas Chapter 11 filings indicate a total inability to repay one’s debt, and have a much worse impact on your score.
- Check Your Credit – This common sense move can save you countless headaches. You can pull a free copy of your report from each reporting agency once a year at www.annualcreditreport.com. Pull a copy from a different agency every 4 months and look it over to make sure that there are no charges, late fees or other negative marks assigned to you that shouldn’t be there. Reporting mistakes are all too common in this arena, and these are usually easily remedied by notifying the reporting agency of their error.
These are just some of the ways that you can improve your credit score, both now and over time. For more information on credit scores and reports, visit www.annualcreditreport.com, www.quizzle.com or consult your financial advisor.