How to improve your credit score

There are plenty of things you can do to help improve your credit score. It is easy and takes little time or money to start making a difference in your FICO rating.

1. Check Your Credit Report Frequently

It may be best to check your score at least once every month because there are so many places that can negatively affect a person’s credit score at any given time, from the extremely obvious (missing payments) to the hard-to-catch (reporting someone else as being you). By checking your report frequently, you’ll catch mistakes quicker and have more time to fix them before they harm your good name.

2. Keep All Accounts Open/Active

Ironically, closing accounts actually lowers scores rather than raising them. This is because credit scores are based on credit history – the longer you’ve had credit, the better. Closing accounts can result in a credit history that’s too short and may hurt your score as much or more than having bad marks on your credit report from past mistakes. Generally speaking, it’s best to keep all credit lines open unless you’re struggling to pay the credit card bills. It might be tempting to close credit lines when you have credit card debt, but credit cards are vital in helping you maintain a good credit score as they show that credit is available to you and that you handle credit responsibly by paying your balance in full each month or pay more than your minimum payment.

How do I go about checking my credit report? You can get a credit report for free once every 12 months from www.AnnualCreditReport.com. The other option would be to go through one of the three credit bureaus directly: Equifax (1-800-685-1111), Experian (1-888-397-3742), or TransUnion (1-800-916-8800).

What if credit card companies call and want to open a new credit line? As long as you pay your credit cards on time, credit lines can be beneficial for your credit score. Just make sure that doesn’t become another debt problem. If you don’t have the credit to back up credit lines, credit card companies will decline you for credit.

How do I get credit? To get credit, you need to have a credit report and maintain good credit behavior: paying your bills on time, not maxing out credit cards or getting too many credit card applications all at once. Credit reports are free once a year, so take advantage of the opportunity to monitor your credit.

What credit score do I need to buy a house? Good credit is generally considered credit scores from 720 and higher. You can obtain credit for buying a car, apartment or home with credit scores ranging from 620 to about 850 depending on the type of loan you are applying for.

• If you are buying an Home or townhouse (mortgage) you will want credit scores 750-850 so that your mortgage interest rate will be lower than average.

• For new & used cars, credit requirements vary by lender, but most require credit scores in the high 500s; if you have bad credit, it can still help to have credit scores in the high 500s.

• If you are looking to rent an apartment, credit requirements vary by complex and credit scores in the low 600s may be acceptable.

Do I need credit for anything else? Yes: credit is needed many other situations such as for cell phones, furniture, utilities, insurance policies etc.

How can credit be improved? Depending on why your credit is bad, you should understand credit-score categories and credit scores range from 300 (poor) to 800 (excellent). Credit bureaus monitor an individual’s credit history including any positive or negative items which are used to determine credit scores. Credit scores are based on credit reports provided by credit bureaus (Equifax, Experian and TransUnion).

What credit score is needed for a credit card? Credit cards typically require applicants to have credit scores in the 600s but there are credit cards available with lower credit requirements including Capital One’s Secured MasterCard. The credit score range and credit limit for credit cards depends on the credit card issuer.

How can I improve my credit score?

1.  Pay bills on time

Paying credit card bills on time is one of the most important factors in credit scores. It’s also important to pay all other debt such as mortgage payments, car lease payments, rent, student loans etc. This includes medical bills and even phone bills (unless agreed otherwise). Credit bureaus want to see you keep up with paying your bill, so make sure you are responsibly paying them off.  If there are any problems making your payment or an incorrect amount was charged, please contact the credit bureau immediately.

2.  Use less than your credit line

Using less than your credit limits is another way to work on increasing your credit score. Of course, using all your credit and not paying anything off can negatively effect credit scores as well. The idea of “using less than your credit” or a low utilization rate (a ratio that measures credit card debt divided by total credit limit) shows lenders that you are credit worthy.

3.  Keep balances low or even zero if possible

Credit utilization is another important factor in credit scoring and credit scores are affected by having high credit utilization rates.   The higher your credit utilization rate, the lower your credit score will be. A moderate amount of credit used (around 30% or less) is ideal for increasing credit scores as it shows lenders that you’re using a little bit of your available credit which means that you use it responsibly, but not too much so that they feel like you may not be able to pay up when required.

5.  Pay down credit card balances to below 30% of total credit limits

One of the reasons that credit scores are so important in your financial life is they effect how easily you can get credit. If credit scoring models see that you have too much credit available to you, they will assume you are not credit-worthy because of the risk of over-leveraging.

6.  Keep credit card accounts open for a long time

Credit scoring models also evaluate credit histories based on how long your credit accounts have been active. They like to see that credit has been used responsibly and that you aren’t too quick to just cancel out an account when it’s no longer convenient. They also don’t want to see a lot of churning either as this indicates financial instability – opening an account, using the credit, then closing the account shortly thereafter is considered risky behavior by lenders who do business with consumers reporting such credit histories.  

In closing, credit scoring models reward consumers who have kept credit accounts in good standing for extended periods of time.  You can get your credit score improved by keeping credit cards, lines of credit, and credit account balances open for longer than the average period of time that it takes other typical consumers to do so.

Digital Impact Pros 6-30-21