How to Improve Your Credit Score

Published January 7, 2013 by

If you are planning to buy a car or a house, your credit score is a very important number. Lenders use your score to determine your credit risk. Whether it’s a car loan, mortgage, credit card or even a mobile phone contract you’re after, the information on your credit report will be crucial in determining whether or not your application is approved. A poor credit score can limit your options. Fortunately, there are some simple things you can do to improve your score.

Check Your Credit Report

Your credit report may contain errors that are causing your credit score to be lower than it should be. That’s why you should request a copy of your credit report at least twice a year. Each of the three nationwide credit reporting agencies (Experian, Equifax and TransUnion) will provide you with a credit score that can be purchased separately or together with a statement of your credit history. Under federal law, you can get a free credit report from each credit bureau every 12 months.

Pay Down Your Credit Cards

Bringing your balance below 30 percent of the credit limit on each credit card you have can help your credit score. If you regularly owe more than this, lenders may view it as excessive debt. If you can’t pay off your entire balance each month, you can still improve your credit score by paying at least the minimum.

Make Automated Payments

Since 35 percent of your credit score is based on your payment history, missing one payment can cause your score to drop 100 points. If you want to avoid penalties, automate your credit card payments. Some lenders offer payment reminders through their online banking system. The longer the period is during which you pay your bills on time, the better your credit score will be.

Avoid Excessive Credit

If you have huge debts, you may be taking on more credit than you can comfortably handle. Statistics indicate that people with high debt loads have the hardest time financially when faced with unexpected events such as an illness, loss of job, or divorce. The more debt you have, the greater the problems will be in case you run into a life crisis.

Keep Debt to a Minimum

Pay off your debt; don’t move it around. If you have past-due accounts on your credit report, pay them as soon as possible. Cancel out-of-date credit cards and settle old debts. Show lenders that you are a responsible borrower by paying off your debt on time. Try to pay off credit agreements and loans ahead of schedule. Lenders will look favorably on this.

Don’t Take Out Too Many Credit Cards

Limit the number of credit cards you open. More requests for new accounts over the same period may adversely affect your credit score. Everytime you apply for a new card, it shows up on your credit report. Adding multiple accounts in a short period of time raises a red flag. You will cause more damage to your credit if you apply for several cards in the hopes that you can get at least one.