5 Simple Ways to Improve Your Credit Score
Your credit score will play a big role in your financial life. When you shop for a new or used car, your credit score will help determine your interest rate and how much your payments are. When it is time to buy a house, a poor credit score could torpedo your dreams and make getting a mortgage nearly impossible. A superior credit score, on the other hand, could qualify you for a super-low mortgage rate and let you get more house for your money.
With so much on the line, it is important to understand your credit score and how it is determined. There are a number of ways to improve your credit score. Some of the most useful strategies are outlined below.
1. Use Strategic Debt to Build Your Credit
If you are young and just starting out in life, you might be trying to avoid debt. A little debt, however, can be a good thing, since it can help you build your credit score. Taking out a small loan or charging money on a credit card allows you to start building a strong payment history.
That history of paying bills on time will come in handy later on - when it is time to buy a new car or shop for a first house. Keeping your debt to a minimum is always a good idea, but there is no reason to avoid borrowing money altogether.
2. Negotiate Your Payment Date
You probably know which parts of the month are worst for your finances. If your rent, utility or credit card payments happen to fall on those dates, you could be at increased risk for late payments.
You may be able to negotiate a more favorable payment date on at least some of your bills. Your landlord may not be willing to change the date the rent is due, but your credit card issuer may be more flexible. Even if you think the answer will be no, it never hurts to ask.
3. Check Your Credit Utilization
One of the main factors used to determine your credit score is the amount of credit you use compared to the amount you have available. Running high balances on your credit cards raises the utilization rate and lowers your credit score.
The best solution is to pay down those high balances. Paying even a hundred dollars extra on each card can raise your credit score and help you get control of your finances. If paying down the debt is not an option at this time, try calling the credit card issuer and asking for a credit line increase. Raising the credit limit can also lower the utilization rate and raise your credit score.
4. Keep Your Old Cards Open
You may be tempted to close old credit card accounts, especially if you no longer use them. Doing so, however, could lower your credit score, so it is best to leave them open. The age of the accounts on your credit profile plays a role in determining your credit score. Closing a longstanding account could cause your score to take a hit.
5. Watch Your Credit Report Carefully
You are legally entitled to a free copy of your credit report every year. Take advantage of that freedom and review your credit reports carefully. Notify the credit reporting agency right away if you spot anything suspicious. An unauthorized inquiry could hurt your credit score, and it could be an early warning sign of identity theft.