7 Ways To Boost Your Credit Rating
If you currently have a low credit score or just want to improve your credit score over time, there are real steps you can take to raise your rating. But since a credit score is the result of number of years of your financial history, not just your most recent behavior, no one change can have instant results. Beware of schemes to repair credit or fix credit as none can deliver as promised and many can actually result eventually in lowering your overall score. But if you consistently follow the steps recommended below, you will most likely see an improvement in your score over time.
1. Carefully Monitor and Manage Your Credit Card Balances
A key component of your credit score is the amount of available credit you have versus the dollar amount you are actively using on a day to day basis. The smaller this ratio is, the higher your credit rating will be. Try to always keep the utilized portion of available credit under one third of the total dollar amount available. To see an increase in your score, pay down your outstanding credit card balances and keep them low. If you have a number of credit cards with outstanding balances, consider consolidating them on a single card or reducing them with a lower rate personal loan. And don’t assume that paying your balance in full each month will avoid this scrutiny. Some credit card issuers use the monthly purchase amount on your statement as the balance reported to the credit bureaus each month, so even if you pay off the balance in full each month, your credit score will reflect this amount in the available to utilized debt ratio reported.
2. Eliminate Most Credit Card Balances
Consider paying off some credit cards completely. Start with those that have the smallest balances. Your credit score takes into account the total number of cards you have that have outstanding balances, and so reducing this number can result in a higher overall score over time. Instead of charging a small purchase on one card and another small purchase on another card, use the same card (preferably the one with the lower interest rate) for both. Once all cards with small balances are paid off, pick just one or two cards to use for everything after that point. Doing this will ensure that your credit report is not negatively impacted by a number of small balances.
3. Don’t Deliberately Remove Old Debt From Your Credit Card
There is a widespread misperception that leaving old debt like a paid off car loan, home loan, or mortgage on a credit report is bad. While negative items will certainly lower your credit score, most of them will disappear on their own from your report after seven years. Good debt on the other hand, those items you have handed well and paid off in a timely manner, is good for your overall score. The longer your history of responsible debt management, the more positive impact it will have on your score. For this reason, leave old debt and good accounts on your report as long as possible. Also don’t close any old accounts where you have previously maintained a consistent payment record.
4. Manage All Debt and Credit Applications Wisely
Don’t apply for credit until you are ready and serious about using it. If you are planning to apply for a credit card, do all of your research and preparation before actually applying. If you apply for credit and then don’t and up using it, the application process will still have a negative impact on your credit score. Every time you apply for credit, it can cause a slight drop in your credit rating that can last for up to a year. There is often an exception when you apply for a car loan, a mortgage, or a student loan. Some current FICO scoring formulas assume that you might make several applications but end up with only one loan and so they ignore any applications made in the 30 days prior to scoring. After 30 days, multiple applications may be counted as a single inquiry. This period can vary depend the individual credit bureau and the particular formula used for calculation and score determination.
5. Always Pay All Bills Prior To the Due Date
While saving money is always smart, neglecting current obligations to accomplish it is not. When working hard to assemble a large lump sum for a down payment on a major purchase such as a home or a car, it can often be tempting to pay a few bills late to achieve your savings goal. Don’t do it! Regardless of your savings balance, one late payment can ruin all your plans since one of the biggest components of your credit score is your month to month bill paying history. A history of consistent on-time payments can often be ruined by one late or missed payment, regardless of the amount or the reason for the delinquency. Beware of items you may not associate with your credit score. Even something like an un-returned library book could result in negative reporting if turned over to a collection agency for resolution.
6. Check Your Score
If you’re planning to finance a large purchase, look at your score in advance to avoid any surprises and to have an indication of just where you stand. Even if not applying for credit, you should check your credit reports at least once a year. You are entitled to one of each of your three credit bureau reports (Equifax, Experian and TransUnion) free of charge every 12 months through AnnualCreditReport.com. Using this service will not lower your credit score. If you just check one of the three every four months, you can monitor your score free throughout the year. If you are denied credit or even just don’t qualify for the lender’s best rate, the lender is required by law to show you the credit score used.
7. Don’t Ask For Trouble
Don’t do things that can be interpreted as potential indicators of trouble. Suddenly paying less or charging more than your normal historical pattern can sometimes be misinterpreted as warning signs. Even though such activity will not necessarily hurt your credit score, it can often be seen by potential lenders as a sign of increased risk. Using your cards at businesses such as pawnshops or to retain a divorce attorney can also be seen as signs of possible financial stress. If you anticipate needing credit in the near future, pay special attention to all of the factors that can affect your score. Otherwise, just consistently pay bills on time and use credit wisely and your score will reflect these habits and improve over time.
Many aspects of the credit reporting process are seemingly unfair. A late payment will lower your score even if the post office is at fault. Using amounts charged each month, even on credit cards that have a consistent zero balance, for credit score calculation is another example. Correcting errors on a credit report, even those there through no fault of your own, can be a long, frustrating, and often unsatisfying process.
One Last Tip
Your member of congress has the power to change these procedures. Let them know how you feel. Not sure who your representative is or how to contact them? Visit www.house.gov/representatives