Your credit score is, in part, a reflection of how well you have paid your bills in the past. It’s also a strong indicator of your level of financial responsibility. Many people do not realize how important a good credit score is, or how often they need credit. Two of the largest purchases most people will ever make are a home and a new car – and mortgage and auto lenders place great emphasis on credit scores when determining whether to lend money, and how much, and at what terms. Even utility companies (including electricity, water, cable, telephone and cell phone providers) perform a credit check on new customers. In an economy that creates major competition for jobs, many employers look at credit scores prior to hiring, as well.
Having a good FICO credit score is more important than ever, and improving your score is not as difficult as you might think. The following tips are the best ways to boost your score.
- Contest Errors on Your Report.
Credit report errors are more common than you might think, from major errors such as listing an extra account to an incorrect payment date. An incorrect date might not sound like a big deal, but consider this: One late payment can drop your credit score 60 to 110 points, which on a scale of 300 to 850 is quite significant. Make sure to review your credit report at least every six months to identify errors. If you find an error, either contact the creditor directly to dispute the issue or contact the credit bureau to report the error.
- Pay Off Overdue Balances.
An entire 35% of your credit report is based on your payment history. If you have late payments, develop a personal strategy for how you will pay them off in the shortest time possible. Start by contacting the creditor directly – creditors value their clients and will in many cases work with you to fix your account and show your payments have been made on time, thus raising your credit score. However, be sure to pay as soon as you can.
- Refrain from Making New Credit Card Purchases.
The more you use your credit card the faster you reach your limit. The ratio between the balance and limit directly affects your credit score. If you have poor credit, aim to use cash or debit transactions as much as possible.
- Do Not Close or Open Accounts.
Even if you no longer use an account, leave it open. Closures reflect poorly on you in your credit report. Closing an account that has a balance is particularly detrimental to your overall score. Likewise, applying for multiple new lines of credit can cause your score to take a hit. When actively seeking to improve your credit, refrain from closing or opening new accounts.
- Leave a Small Remaining Balance Month to Month.
This tip may come as a surprise. It is directed at people who have average credit and are able to pay off their credit cards in full each month. When they’re able to, many people choose to pay off their credit card in full every month rather than pay any interest on the balance. But because credit factors are reported at the end of each payment period, those accounts show a zero balance month after month, making them appear unused, and do not help raise the user’s credit score. Leave a small unpaid balance each month (small in relation to the card limit) to show that you are using your card and paying it off.
The power of a good credit score cannot be overstated – and it’s much easier to improve credit than people assume. Invest a little time in reviewing your credit report regularly and take action. You are on your way to financial security.