One of the most important aspects of your financial life is your credit score. Whether or not you think that the system is fair, or rigged, or just plain annoying, the fact of the matter is that your credit score is a big determining factor in a number of financial transactions. It can determine what sort of interest rate you get on a loan (potentially saving you thousands of dollars) and even whether or not you get the loan in the first place. Many employers and insurers also look at your credit score when making decisions. So you can see why it is such an important part of your personal finances. Naturally, you want to do what you can to make sure you have a good credit score. Here are five tips for improving your credit score:
- Pay your bills on time: This is one of the most important aspects of your credit score. Make sure that you pay all of your bills on time and that you pay at least the minimum owed. Remember that most creditors count your payment as arriving on the day it arrives, not the date the envelope is post-marked. You want to make sure you send your payment in plenty of time to arrive by the due date.
- Keep your debt owed to a small portion of what's available: You may have $9,000 in available credit on three different credit cards, but you don't want to be maxed out. Paying down your debt can help your credit score. Once you start using 50% of your available credit, your score drops. Ideally, you should try to keep your debt owed to no more than 30% of your available credit.
- Consider length of your credit history: It may seem tempting to close credit cards as you tackle holiday debt or make New Year's resolutions to pay off your credit cards, but don't be hasty. Once you close a credit card, you have less available credit. Plus, you are closing an account with history. The longer your credit history, the better your credit score. So don't cut up that card just yet.
- Be careful of new credit: Applying for lots of new credit at once can damage your credit score. Instead, carefully consider the types of credit you are thinking of and don't get crazy about getting new credit. This is especially true if you plan to make a large purchase, such as a home, or refinance your house. Applying for a credit card and getting a car loan a couple of months before can damage your credit score and make it difficult to get the best rates. You should also consider the type of credit you get. Payday loans will hurt your credit score more than a major credit card.
- Fix errors on your credit report: You will not be penalized for checking your credit report, and you can do it for free, once a year, at annualcreditreport.com. Make sure that the information in your report is accurate, and have the credit bureau fix mistakes on your report.
In the end, having a good credit score is about vigilance and doing what you can to make sure that your financial reputation is intact.
-- Miranda
Image source: Pne via Wikimedia Commons