February 10th, 2017 5:08 AM by Jackie A. Graves, President
Improving your credit score is
one of the best investments that you can make in your financial life.
Your credit score may determine whether you qualify for a student
loan, mortgage, auto loan or credit card. Your credit score also may be used
when you apply for insurance, rent an apartment or purchase a cell phone.
To maximize your chance for approval and to help obtain the lowest
interest rate, here are five easy steps that you can take to boost your credit
your credit reports for accuracy
It is essential that you obtain a copy of your credit report and
check it carefully.
The Federal Trade Commission found that 5% of consumers had one or more
errors on their credit report. There are three major credit bureaus: Experian, Equifax and TransUnion. Each credit bureau collects
information on your credit history and develops a credit score that lenders use
to assess your riskiness as a borrower. Under federal law, you are entitled to
view your credit report every 12 months from each credit bureau. Since each
credit bureau may have different information about your credit history, your
credit score may vary across the three lenders.
For a free copy of your credit report, you can visit Annualcreditreport.com or Credit Karma.
Credit Karma, for example, will provide your credit score and credit report
from two credit bureaus: Equifax and TransUnion.
If you find an error, you should report it to the credit bureau
immediately so that it can be corrected. Your credit score will not improve
over night, but the sooner you take action, the better.
Develop a financial track record
If you already have a credit history, but want to improve your
credit score, you need to demonstrate that you are financially responsible. To
do so, you need to develop a financial track record in good standing.
Credit card companies, for example, closely monitor both your
payment history and account age (how long the account has been open in good
standing). If you have a credit card, start by making small purchases and
paying off the balance in full each month. The longer that you can keep open a
credit card in good standing, the better (so that you can increase your account
age). Consistent on-time payment history and a long account age demonstrate
both financial discipline and responsibility.
3. Do not
open or close multiple credit cards at once
Opening multiple credit card accounts at once will result in
several hard inquiries to your credit report, which can cause your credit score
to drop (at least temporarily).
Credit card companies also will view you as a risky borrower.
Likewise, if you have multiple credit cards, do not close them all at once.
Even better, if you have an older credit card and it does not have an annual
fee, you should consider keeping it open to demonstrate a longer credit
your credit card utilization low
Lenders evaluate your credit card utilization, or the relationship
between your credit limit and spending in a given month. If your credit
utilization is too high, lenders consider you higher risk.
Ideally, your credit utilization show be less than 30%. For
example, if you have a $10,000 credit limit on your credit card, ideally you
should spend less than $3,000 in a given month. If you can use cash in lieu of
a credit card to reduce your credit utilization to 20% or even 10%, your credit
score should be even higher.
Here are some ways to manage your credit card utilization:
set up automatic balance alerts
ask your lender to raise your credit limit (this may involve a
hard credit pull so check with your lender first)
rather than pay your balance with a single payment at the end of
the month, make multiple payments throughout the month
Credit utilization is reported to the credit bureaus monthly at
your closing date. Therefore, anything you can do to reduce your balance during
the month before your closing date will help improve your credit score.
your bills on time
Paying your bills on time is a major contributor to your credit
Whether it is your utility bill, rent or student loan payment, you
should always pay your bills on time. Failing to pay your bill on time can hurt
your credit. FICO scores are weighted more heavily by recent payments so you
can “override” a past missed payment by developing a pattern of more recent
on-time payments. Therefore, if you have a delinquent payment, pay off the
balance. However, missing a payment altogether can stay on your credit report
for seven years.
To avoid a late or missing payment each month, enroll in automatic
payment with your service provider. Some service providers, such as student
loan lenders, provide a financial incentive when you enroll in auto pay. For
example, you may be eligible for a 0.25% interest rate deduction with your
student loan lender when you enroll in automatic payments. If you have a choice
to enroll in auto pay with your bank or directly your service provider, choose
your service provider to ensure that your payment arrives on time each month.
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