3 Simple Steps to Improving Your Credit Score
The average American has a credit score of 704. If your Fair Isaac Corporation (FICO) score is around that number, that’s fantastic. But even though that’s a pretty healthy figure, there’s still plenty of room for improvement. And if your score is lower than that, don’t lose heart. You can do plenty to bring up your […]
The average American has a credit score of 704. If your Fair Isaac Corporation (FICO) score is around that number, that’s fantastic. But even though that’s a pretty healthy figure, there’s still plenty of room for improvement. And if your score is lower than that, don’t lose heart. You can do plenty to bring up your credit score – it all boils down to making the right financial choices over time.
Get A Copy Of Your Credit Report
If your credit score is lower than expected and you’re not sure why, it’s a good idea to get a copy of your credit report. This document spells out all your credit-related activities. You should be able to get a free copy of your credit report each year from either Experian, Equifax, and TransUnion.
Go through the document thoroughly to check for errors or fraudulent activity. If you don’t find any, you should be able to find out what’s affecting your score, such as late payments, repossessions, and so forth. By having a clear picture of your credit standing, you’ll have a better idea of how to improve it.
Pay Your Bills On Time
Your payment history shows potential creditors how reliable of a borrower you are, as they’re indicative of how you’ll be paying in the future. Doing something as simple as paying bills on time can make a significant positive difference to your credit score. Conversely, paying late — or less than the agreed-upon amount — can damage your credit score.
Your credit card bills are the most important when it comes to your credit score, but this can also be affected by your other bills, such as student loans, rent, and even your phone bill. To make sure that you don’t miss any deadlines, you can set up automatic payments or calendar reminders to help you stay on schedule. If you’re behind on payments, try to catch up as soon as you can.
Improve Your Credit Utilization Ratio
Your credit utilization ratio (or credit utilization rate) measures the balance you owe on your credit cards relative to your credit limit. If your credit limit is $10,000 and your current balance is $5,000, your credit utilization is 50 percent. A high utilization ratio shows that you could be overspending, which is why it can damage your score.
To improve your credit utilization ratio, the best thing to do is paying off your debt. And if you have any unused credit cards, keep them open — especially if you’re not paying any annual fees. You can lower your ratio by getting a higher credit limit. There are two easy ways to do this: either by simply asking your credit card provider for a higher limit, or even applying for another card. (However, it’s important to note that this could tempt you to spend even more than you can afford to pay back, wreaking more havoc on your credit score.)
Your payment history and credit utilization ratios are two of the most important factors when calculating your credit score. Together, they make up to 70 percent of your credit score, so keeping these two in check is crucial. It takes time for your credit score to improve — late payments, for example, stay on your credit report for seven years. But the sooner you get started, the better.