Your credit score isn't just a random number; it's a measure of how likely you are to keep up with your financial obligations. Lenders, whether they're of the mortgage or credit card variety, take that number seriously, and use it to determine whether you'll be approved for a loan and are eligible for a favorable rate on it.
Your credit score will also dictate whether you're able to rent an apartment, lease a car, or even, in some cases, get a job. That's why it's important to raise your credit score if it's currently hovering in unfavorable territory.
Credit scores range from a low of 300 all the way up to 850, which represents perfect credit. If your score is in the 300s or 400s, you may not want to bother applying for a credit card or loan, as anything below the mid-500s is considered really poor. On the other hand, a score in the upper 600s or above is considered good, and if you hit the mid-700s, you're in even better shape. Here are a few things you can do to raise your credit score without breaking too much of a sweat.
1. Pay all of your bills on time
Of the various factors that go into calculating your credit score, your payment history carries the most weight. Your payment history speaks to your tendency to pay bills on time, so if you do just that -- pay your upcoming bills on time -- your score will start to climb. Setting calendar reminders is a good way to avoid being late on your payments, but also, see which bills you can automate to ensure that they're paid by their respective due dates.
2. Pay off a chunk of existing debt
The second-most important factor that's used to calculate your credit score is your utilization ratio, or the extent to which you're using your available credit. A utilization ratio of 30% or below will help your score, which means that if you have a total line of credit of $10,000 available, you should never carry a total balance that exceeds $3,000. Paying off some of your existing debt will therefore help bring your score up, so if you come into a pile of cash -- say, from a performance bonus at work, a holiday gift, or a tax refund -- it pays to use it to knock out some debt.
3. Ask your credit card issuers to increase your credit limit
Just as paying off some existing debt will help on the utilization front, so,too, will getting your credit limit raised. Imagine you owe $3,500 on a total credit limit of $10,000. Since you're above that 30% threshold, that's no good. But if you get that credit limit raised to, say, $13,000, you'll be back in favorable territory, and your credit score will get bumped up. And if your accounts are in good standing, chances are, you'll have no trouble getting what you ask for.
4. Check your credit report for errors
Credit report errors aren't uncommon, but if yours contains information that works against you, it could be bringing your score down. You're entitled to a free copy of your credit report every year from each of the three major reporting bureaus -- Experian, Equifax, and TransUnion -- so request yours, review it for mistakes, and dispute any incorrect data with the appropriate bureau. Also, don't be shocked if your credit report doesn't contain your actual credit score -- it generally won't. But it will contain details of your credit history that you must verify for accuracy.
Whether you're applying for a loan through your bank, looking for an auto loan, or seeking a new place to live, the higher your credit score, the greater your chance of getting what you want. Follow these easy tips to raise your credit score, and with any luck, your options will soon begin to open up.