Is Your Credit Score Less Than Perfect?
Don’t get discouraged. You can improve your credit score with a little patience and a good plan. Learning how to manage your credit is a necessary life skill these days. Here are a few areas to take into consideration when developing your plan.
Pay Your Bills on Time
This may be fairly obvious, but pay your bills on time and do not let them fall into collections if you can help it. But hey, sometimes life just happens. When it does, call your creditor, tell them what is going on, and work something out. More often than not, they are willing to work with you more than you would like to think. The longer you can maintain positive payment history, the more your credit score will go up over time.
Monitor Your Credit Files and Report Any Inaccuracies
Take advantage of free credit monitoring tools, like Credit Karma. Some credit card companies even offer credit monitoring rolled into their product’s benefits package. You may already have access to these free and useful services through your credit card provider(s) and not know it, so it is worth looking into!
As you may already know, Equifax, Experian, and Transunion are the three major credit bureaus. Every 12 months, you are entitled to a free copy of your credit report from each. You can order them all online in one place at AnnualCreditReport.com.
According to the Fair Credit Reporting Act, you are also entitled to additional free copies of your credit report any time you are denied credit or insurance, suspect that you are a victim of fraud and/or have placed fraud alerts on your credit files, are unemployed but will be searching for employment very soon, or if you are receiving welfare assistance. Keep these requirements in mind because it is best to check your credit more than once a year or more often than right before you intend to make a big purchase.
Once you get an updated copy of your credit report, keep your eyes peeled for inaccuracies. If you happen to find any, dispute them with each of the three credit bureaus. The dispute process is fairly easy and can typically be completed on their websites or by mailing in a dispute form. Depending on the situation, they will either correct the information for you or remove it completely. Sometimes this is all it takes to improve your credit score with this “quick” boost!
Understand Your Debt to Credit Ratio
A general rule of thumb is to keep your balances at or below 30% of your available credit. So, if you have $1,000 in available credit, try not to carry a balance that is more than $300. If you cannot pay the entire balance in full every month, try to make payments on it that are more than the minimum required monthly payment.
As tempting as it may be, do not max yourself out. The higher your balances get, the harder they are to pay down over time when coupled with interest, and your credit score will drop. At this point, you may be wondering — why even use credit? Because some credit is better than no credit. This is especially true if you plan to finance a large purchase such as a car or house in the future.
Wait – Don’t Close That Account!
Your average age of credit, or the length of time you have had a credit file, is also an important factor that goes into determining your credit score. The “older” it is, the better. That store credit card you got a decade ago that you have kept in good standing, but barely use and have thought about closing? Do not do it! Keep it open, use it about once a month, and pay the balance off in full every cycle to keep it active so that the credit card company does not close it on you. Imagine if this was your oldest card, and your second oldest card was only three years old, and your oldest card was closed. This would bring your average age of credit down to 3 years from 6.5 years and would most likely cause a big drop in your score. When you close an account, it is not factored into your average age of credit anymore, so it may make your credit history look a lot shorter than it is and we do not want that!
Credit scores can range from 300-850, so it can take some time to improve your credit score. The best route to take is that of patience and in time you will surely meet your goals!