You might not think too often about your credit score and credit report, but they can have a huge impact on your life. Landlords, for example, can check to see how delinquent you've been in paying past obligations. Insurers, banks, and credit card companies can look into your credit score, too, with financial consequences. A high score can lead to a significantly lower mortgage rate, which can save you tens of thousands of dollars. Thus it's well worth learning about ways to improve a credit score so that your score is as perfect as possible.
Here are a handful of the many ways to improve your credit score.
- Fix those errors. One of the simplest ways to improve a credit score is to correct errors in your credit report that are dragging down your score -- such as a late payment that was paid on time or a sizable sum you never borrowed. You are allowed to request a free copy of your report each year from each of the credit-reporting agencies. There are three main ones, and they each offer ways for you to have mistakes corrected.
- Keep a low debt-to-available-credit ratio with your credit cards. Aim to have borrowed only about 10% to 30% of the sum of all your credit limits. If you've borrowed more than that, then...
- Pay down your debt. This is another simple way to improve a credit score, though it can be easier said than done if you have a lot of debt. Know that many people have paid off tens of thousands of dollars worth of credit card debt -- some more than $100,000! Financially speaking, it's usually best to pay off your high-interest-rate debt first. Those credit card rates of 20% or higher can hurt you more than a 5% mortgage or car loan.
- Time yourself. If you're shopping for a mortgage or anything that results in your credit score being looked up, try to do so within two to six weeks. A lot of inquiries can lower your score temporarily, but less so if they're bunched together.
- Reduce the number of credit cards you use. Having too many credit card accounts open might dent your credit score, but ironically, the act of closing a credit card account can hurt your score, too -- if you're carrying a lot of debt relative to your credit limit. It doesn't hurt as much if your debt is relatively low. Another way to improve your credit score is to only use a few of the cards, because the number of cards with balances owed affects your score, too.
- Learn more and be strategic. Don't rush to close as many accounts as you can or to wipe old debts off your record. If you paid them off on time, then they're actually serving you well, boosting your score. Having old accounts is a plus, too, reflecting a long history of credit use, so use that old credit card in your drawer every year or so. It's worth getting an old debt you handled poorly off your record if you can, but note that after seven years, many of those debts should disappear on their own. Thus, if you plan to buy a house soon, you might want to time your mortgage application process so that it happens once your bad debt is off the books and your score is higher. Read up on credit to get savvier about it.
- Be boring. The best of the many ways to improve your credit score is just to pay your bills regularly. Having a credit report without much of interest on it -- just on-time payment after on-time payment -- is a good thing.
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