|
How Do I Improve My Credit Score? Discussion of Do's and Don'ts |
|
|
|
If you have ever applied for a loan or credit card, then you are well aware of the fact that your credit score can negatively or positively affect whether or not you live in a nice home or drive a decent car. Even potential employers, landlords and insurance companies often times look at your credit report to determine whether or not you are a risk. However, credit card companies are very quick to extend credit to almost anyone regardless of their age, income, and even employment status. Large credit limits are given to college students and the unemployed and recently, a major credit card company issued a card with a $600 limit to a six year old. This makes it very easy to live beyond your means and get into financial trouble thus lowering your credit score.
Your credit score is determined based on five different criteria: payment history (35%), total amounts owed (30%), length of credit history (15%), new credit (10%), and type of credit in use (10%). A persons credit score ranges from 300-850 and will differ depending on the credit bureau. The breakdown is as follows (but like your actual credit score, these ratings will vary slightly among the credit agency): 310-619 is a poor rating, 620-659 is a fair rating, 660-749 is a good rating, and anything 750 and above is considered an excellent rating. Surveys have found that approximately 11% of the population has a credit rating over 800.
Even if you do not have a low credit score currently, you may still want to increase your score to get a lower rate on mortgages, car loans, and credit cards. However, with an estimated thirty million Americans having scores in the poor range, improving your credit score may have become necessary to those wanting to make any major purchase. The first step in doing so is to get a free copy of your credit report from each of the three major bureaus. It is important to get a copy of all three reports because information may be correct on one, but incorrect on the others. Look at each of the three reports carefully and determine if all of the information is correct. If you find mistakes, contact the bureau and ask that the incorrect information be removed.
Once you have done some housecleaning on your credit reports, now is the time to start repairing or improving your credit. First and foremost, begin to pay all of your bills on time. Even one late payment can have a huge impact on your score. The last five years of payment history is the most important so even if you had late payments in the past, you can still improve your score now with prompt payment. Also, making payments to credit cards on time and for more than the minimum payment will result in increased lines of credit.
A credit card company increasing your line of credit is not code for "let's spend more". If you truly want to raise your credit score, then keep as much of a cushion between the amount that you owe and your credit limit. Credit bureaus like to see at least half of your credit limit unused. Having less available will result in a lower credit score because you are seen as a higher risk. If you will soon be applying for any type of loan, it would be in your best interest to pay down your credit card bills as much as you can. It is important to note that even if you pay off the balance every month, it will still show up on your credit report. So, if you are in the habit of charging many expenses during the month for whatever reason, you should start using cash instead.
When you do pay off a credit card in full, do not close out that account. Closing accounts lowers your total amount of available credit. You may want to consider keeping those cards and making a purchase once a year just to keep the account current. Doing so will also increase your length of credit history making you appear more credit worthy. While keeping accounts that you already have current is a good idea, opening up new accounts can actually hurt your score even if it does increase your amount of available credit. Too many new accounts in a short period of time will make you seem risky to potential creditors.
If you do find yourself in trouble with your creditors, it is important to contact them and ask for special payment arrangements. There is always the chance that they will say no, but you won't know until you ask. Keep in mind that paying off a collection account will not remove it from your credit report, but the longer that it remains unpaid, the worse on your score it is. In the end, the smartest way to raise your credit score is to manage your finances responsibly. I have seen many people blame the credit card companies when their debt becomes unmanageable, but the responsibility of credit lies with the consumer. You and only you are spending the money and it should be treated as a privilege- used only when necessary.
Heather A. Carroll owns a home-based business ( http://www.alternativeincome4u.com?t=art10 ) specializing in aiding people in building a solid financial future for themselves and their families. She is a single mother of three and resides in Illinois.
Article Source: http://EzineArticles.com/?expert=Heather_Carroll |
