by Maurie Backman | Feb. 22, 2020
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Poor credit makes it hard to get a loan or borrow affordably. And that's why it could pay to give your score a boost.
The higher your credit score, the more borrowing options you'll open up. Having good credit could help you qualify for an affordable mortgage, get approved for a personal loan at a competitive rate, or snag a credit card with awesome perks. It can also make it possible for you to rent a home or even play a role in getting you hired for a job.
Credit scores range from a low of 300 to a high of 850. While perfect credit is very hard to achieve, a score between 740 and 799 is considered very good, while a score of 800 or higher is considered exceptional. Unfortunately, new data from Experian reveals that 16% of consumers have poor credit, with scores in the 300-to-579 range. If that's what your credit score looks like, then you'll want to work on bringing that number up as quickly as possible. Here's how.
Of the different factors that go into your credit score, your payment history is the most important. So one of the easiest ways to boost your credit is to pay your incoming bills on time. Keep in mind that, even if you’re not paying your entire balance in full, making your minimum credit card payments counts as being timely. If remembering to pay your bills is an issue, set up calendar reminders or sign up for automatic payments for those billers that offer that option.
Another big factor in determining your credit score is your credit utilization, or the amount of revolving credit you're using at once. Revolving credit refers to accounts that don’t have a fixed number of payments (i.e., credit cards, rather than your mortgage). The bureaus classify a good credit utilization ratio as being at or below 30%. So if you have three credit cards with a combined total credit limit of $15,000, you should aim to never have more than $4,500 in your outstanding balances at once. If you're at a higher threshold right now, paying off some of your debt will bring down your utilization ratio and drive your score up.
Credit report mistakes happen all the time, but if you have an error on file that works against you, such as a debt in your name that you never actually incurred, it could harm your credit score in a very big way. You're allowed access to one free copy of your credit report each year from each of the major bureaus -- Experian, Equifax, and TransUnion. Therefore, your best bet is to order one report from a different bureau every four months. That way, you can monitor your credit record regularly and take steps to correct mistakes that may be bringing your credit score down.
You may be tempted to close out old credit cards you no longer use, but if you've had those accounts around for years, and you've never been delinquent in making payments on them, it pays to keep them open. The length of your credit history is another key component of your credit score, and the longer your accounts stay open, the more your score stands to improve.
You never know when a poor credit score could come back to haunt you. If your score leaves much to be desired, work on boosting it slowly but surely. It may take time, but if you bring that number up, you'll have a lot less to worry about financially.
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