How to Improve Your Credit Score in 7 Steps
Wondering how to improve your credit score? Get answers to these important questions:
I learned the importance of having a good credit score early on. And it wasn't in the best way. I was in college and got a lot of credit card offers. Of course, I filled them out. But I didn't use the cards because I didn't have a job, and my dad made it very clear he wasn't going to pay my bills. I thought I was being responsible. And I was. Except that my cousin asked if she could use one of my store credit cards to buy just one outfit, and I said okay. That was a mistake.
One outfit led to another, and before I knew it, she had charged my card to the limit. And she couldn't pay it off. I was stuck with an unpaid bill, which meant I started my young adult life with a ding on my credit report. If I'd understood how important it is to protect your credit score, I wouldn't have been so willing to hand over my credit card to my cousin.
As a financial advisor, I've worked with a lot of young (and not so young) people who've jeopardized their credit score in one way or another because they didn't understand the basics. So I'm going to answer some common questions about credit scores and offer strategies on how to improve yours.
What is a credit score?
A credit score is a numerical expression of how credit-worthy you are. And a major factor in that comes down to how likely you are to make your payments on time. It takes into account information from your credit report, including credit card companies you've dealt with, banks where you have or previously had loans, and almost anyone else who's considered you for credit. Lenders, landlords, even potential employers may be looking at your credit score as an indicator of how responsible you are.
What does a credit score mean, and why does it matter?
You've probably heard of a FICO? score. That's because, while there are several agencies that create credit scores, FICO scores are among the most widely used. They range from 300 to 850, and each range determines how likely you are to get credit and at what interest rate. Your score not only can mean the difference between getting or not getting a mortgage or car loan, but also how much it will cost you to borrow that money. And that can translate into paying—or saving—thousands of dollars over time.
The average credit score is around 718. A score of 760 or higher usually gets the best rates.
What is my credit score based on?
Different credit scores like FICO or VantageScore use slightly different methods to calculate your score. But in general, your score is based on five factors—here are recent FICO weightings:
Understanding how all this fits together is essential to answering the next, perhaps most important question.
Can I improve my credit score?
Now that we've established how credit works, let's take a closer look at how to improve your credit score. A bad credit score may be due to some mistakes you've made, or it may be because you're new to the credit world and don't have much to show for it yet. Whatever the reason, here are seven things you can do to bring that score up—and keep it there.
1. Pay your bills on time.
Late payments or missing payments can lower your score more than any other factor. Making regular, on-time payments is one of the best ways to bring it back up. That's what I did to improve my own score when I got out of college. And that's what I do today. I also make sure to pay my bills before the due date. Setting up automatic payments makes this pretty painless. Just be sure you have the money in your account to cover them.
2. Keep your balances and overall credit card debt low.
Ideally, the amount you borrow should be less than 30% of your available credit limit. This is called your credit utilization rate. So, if you have a card with a $5,000 limit, 30% of that is $1,500. But to me, the best guide is to only charge what you can pay off each month—that should be your real limit. Go ahead and use your card to buy groceries, gas, whatever you need, but pay it off right away. This will help you build credit and, at the same time, stay out of debt.
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3. Be cautious about new credit applications.
New accounts and multiple credit applications can lower your score and cause lenders to see you as a higher risk. Many cards offer rewards and discounts to lure you in, but don't be tempted by free stuff. It usually comes with high interest rates, annual fees, and penalties. That $10 off now could end up costing you a whole lot more later.
And while it might seem counterintuitive, every time you apply for a new credit card, the lender will typically run a "hard inquiry" into your credit history—and credit inquiries can result in negative marks on your credit score. So especially if you know you'll be looking for a big loan (like an auto loan or mortgage) soon, the fewer credit applications now the better.
4. Use a combination of credit types.
Your credit mix matters. In addition to credit cards, having other types of credit such as student loans, a car loan, or a mortgage can improve your score. But avoid opening new accounts just to help your credit score. It's much better to develop the discipline of paying down debt and managing your current credit wisely.
5. Aim for a longer credit history.
The longer your credit card accounts are open (and in good standing), the better it is for your score. This includes accounts you no longer use and those with a zero balance. As long as they're open, they will be factored into the average age of your credit. You don't have to carry a balance to help your credit score. However, a word of caution here too: Don't be tempted to use a credit card just because it's there.
6. Check your credit report regularly.
You can easily get a free credit report each year from the three credit reporting agencies—Experian, Equifax, and TransUnion. Just go to AnnualCreditReport.com . This report shows your payment history, loans, current debt (including credit card balances), bankruptcy history, and lawsuit records. But it won't show your credit score—that's available for a fee from the credit agencies. You may be able to get it free from your own credit card or loan provider.
7. Dispute any credit report errors you find.
Once you have your credit report, review it carefully. Make sure all the debts listed are yours and that balances you've paid off are reported accurately. Don't hesitate to dispute anything you think is incorrect. For an extra layer of protection in this era of identity theft, I suggest freezing your credit report if you don't plan to apply for new credit soon. It's quick and easy to unfreeze it if you need to apply for something down the road.
How can I get credit without a credit history?
It may seem like you can't get credit unless you already have it. So, what do you do when you're just starting out? There are a few ways to begin building a credit history.
Building your credit score is worth the effort.
Building and protecting your credit score takes time and effort, but it's worth it. The real reward is the ease you could have in qualifying for major purchases in the future, like a home, a car, or college. Not only could it be easier to secure a loan with a higher credit score, but you'll also likely get a better interest rate—which could ultimately save you thousands of dollars.
So don't be a hostage to your debt. Act now to pay your bills on time, keep debt low, and prove to lenders that you're credit-worthy. Remember, how you use credit today affects what you can do tomorrow.
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.
Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.
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5 个月For something that was invented in 1989, I'm not sure credit scores are the best measure of credit-worthiness. There are inherent problems in system which makes it difficult to establish a credit score without previously having access to a credit card. There are even more problems with a credit system that allows parents or strangers to take out credit in someone else's name then holding the person whose identity was stolen responsible for the debt. Why is some debt "good" while other debt is "bad?" These steps are great, but let's acknowledge that the system has a lot of issues that need to be fixed and those fixes can't come from individual consumers.
Next Trend Realty LLC./wwwHar.com/Chester-Swanson/agent_cbswan
5 个月Thanks for the updates on, Charles Schwab ?? ?? ?? ?? ??.