Do you know your credit score? Are you happy with it? If you haven’t got a great score, chances are you aren’t thrilled. But what can you do about it? Turns out there’s a lot you can do. So keep score on these five ways you can improve.
Monitor Credit History
First off is the simplest. Keep track. You are allowed a free copy of your credit report every year from each of the reporting agencies. One trick to keep a watch year-round is to check them four months apart on a rotating schedule. Look through all the data reported. Make sure your personal information is right. Check credit information as it is reported. That’s a great way to catch identity theft early.
In some cases, you might even catch honest mistakes, like having information from someone with the same name who lives in your city being mixed with yours. Anything that doesn’t look right, research, and if it is wrong, report it and get it corrected. There are a lot of rules the agencies have to follow, so make sure you use the ones that are there to protect you from errors and fraud.
Pay Bills on Time
Another simple one, at least to describe. Many of your bills are reported to credit agencies if they are late. All of your utilities, for example. Keep your payments up to date and on time as much as possible. If you have a payment coming due that you won’t be able to pay, contact them and make payment arrangements and ask if they will forgive a late payment. It is possible you can keep it off of your credit report this way.
Keep Credit Cards Open
Many people recommend cutting up credit cards once they are paid off. Close the account immediately, they recommend, so you don’t charge on it again. While psychologically this makes some sense, it actually harms your credit rating.
One of the credit score measurements is the age of your credit. How long you have had credit on average. By closing credit card accounts after you pay them off, you remove that account from your history, making your average now based on only your open accounts. If the one you closed is older than even one of your other open accounts, your credit age decreases and your credit score goes down.
The best way to handle it is to leave those old accounts open, with a zero balance, and keep your credit age as high as possible. You can even shift the average the other direction by closing a very recent credit card account instead. If you have an account that is ten years old and two that are only a year, your average is 4 years. If you close one of the recent ones, your average goes up to five and a half years. Do the math and see if you can shift your average in your favor.
Keep Balances Under 30%
One part of your score is based on your credit utilization ratio. Basically, that’s the percentage of the revolving credit, credit card debt is revolving credit, you have used compared to what is available. If your best travel card credit limit is $20,000, and you have a balance of $10,000, you have a ratio of 50%. That’s not great. To maximize your credit score, keep your ratio under 30%. For the previous example that means less than a $6,000 balance.
This is another reason to keep old credit cards open. It reduces your total ratio because you have credit available that you are not using. One special note here, the way your balance is calculated, it is not enough that after making a payment it is under the ratio. You may need to pay twice a month in order to have it remain under the percentage.
It’s possible to pay the entire balance every month and still exceed the 30% mark. If you use your credit card regularly, talk to your lender and figure out how they report this to the credit agencies and how you can keep your utilization ratio healthy.
Pay Down Debt
You’ve probably heard this one before. Pay off outstanding debt. Follow the other tips above to make sure you keep current bills current, and keep your utilization ratio low, but otherwise save yourself some money and pay off high interest debt first. One way you can increase your credit score and save money is to get an unsecured personal loan with a lower interest rate than your credit card.
This can help bring you in under the credit utilization ratio and diversify your credit mix by moving revolving credit to an installment loan. Of course, the lower the interest rate, the more money you save on your payments. It isn’t necessary to pay off all your debt, mortgages as debt are not unusual, but the more you can the better.
While it may not be reasonable to shoot for a perfect 850 on your credit score, you can probably improve it no matter how high or low. Follow these tips and remember, no matter how big a black mark you get on your credit report, if it is paid off, after a certain amount of time it can be completely erased. So work to fix your black marks, add some good stuff, and wait for things to improve. If you do things right, it’s only a matter of time.