How to Improve Your Credit Score

A strong credit score will help keep your finances affordable. The lower your score, the higher interest rates you’ll have to pay on mortgages, car loans, and other personal loans. A poor credit score could even cost you a job or make it hard to rent an apartment. It’s extremely important to have a thorough understanding your credit report, and take action to improve your credit score if needed. Here are some tips.

Reading Your Credit Report

Your credit report is record of the lines of credit you currently have open and any attempts you’ve made to open a line of credit (usually within the last seven years). This list will include any credit cards, student loans, mortgages, auto loans, and personal loans you have in your name.

A credit report also details how you use your available credit: Do you pay your monthly bills on time? Have you ever been delinquent? Are there items that have been sent to collections? Negative information such as missed payments, items in collections, and bankruptcy can stay on your report for up to seven years.

Credit reports do not contain banking or investment information, so any debit cards, checking accounts, savings accounts, and investments will not be reflected on your report.

If you request a credit report and see inaccurate information, you should dispute the error to the credit bureaus immediately.

Improving Your Credit Score

Your credit score is based on the information on your credit report; a healthy report equals a strong credit score. Lenders determine if you’re a trustworthy borrower by your credit score. FICO credit scores range from 300 to 850. Any score that’s above 700 is considered “good,” and will help you be eligible for top financial products. The following are factors that can help rehabilitate your credit score to a healthy level, or keep you in the green if you are already in good shape.

• Pay your bills on time: Missing a payment will lower your score.
• Keep a low utilization rate: Only use 20 percent or less of the available credit on your credit cards each month.
• Diversify your credit: You can build a strong credit score with just credit cards, but multiple types of loans, such as a mortgage and car loan, will improve your credit score.
• Prolong your credit history: Time heals all wounds. Your score will bump up as time passes.
• Limit credit inquiries: Applying for a bunch of credit cards or loans at once will hurt your score.

Building Credit

If you don’t have a credit score because you don’t have any loans or credit cards in your name, don’t worry. Your credit score is never permanent, and there are always to take action to bring the number up to where you want it to be.

First, you’ll need to open a line of credit. Opening up a credit card is the easiest way to do establish credit. Opt for a card with no annual fee, make small purchases each month, and pay off your balance on time and in full. This will help build a strong credit score.

If you don’t qualify for a regular credit card, you can apply for a secured card. You’ll need to put down a refundable deposit (often around $200), which will serve as your line of credit. Make one small purchase a month, such as a cup of coffee, and then pay it off on time and in full. It won’t take long for your score to start improving, and eventually you’ll be able to apply for a regular, unsecured credit card.

Understanding your credit report and score is important to the health of your finances. If your score is lower than you would like it to be, take action now. Your future self will be grateful.

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