How to Improve Your Credit Score
If you are planning to purchase a home or take any other line of credit, it’s usually beneficial to take steps to improve your credit score before approaching lenders for financing. If your credit score is over 600, great! You are ahead of the game. If not, you may already know that you need to do something about fixing your credit. Depending on your particular situation it may take a few months or even years to raise it to a convenient level. Regardless, there are simple steps you can take to regain control of your credit and take it to where you need it to be.
Obtain your Credit Reports
The first step you need to take is to order a copy of all your credit reports. This should not be overlook because it helps you to get an idea of your current situation and how you got there. You might be amazed that 3 out 4 people have some type of error in their reports and 25% have some type of significant error that might get their loan rejected. This is why is so important that you get a copy of your reports from all agencies. This can be easily done visiting the website www.AnnualCreditReport.com which allows you to get one free copy per year.
When you get your credit reports, look carefully for any errors or discrepancies. Then, make note of everything that you need to correct such as credit card accounts that are maxed out and over the credit limit, charged off accounts, accounts past due and in collections, accounts that don’t belong to you, and paid off accounts that have not been reported as such. If there are any inaccuracies you can dispute them with the credit bureaus.
If you want to avoid the hassle, you also have the option to use the help of a Credit Repair Business so they can do the work for you.
Start with a Secure Card
Getting a secured credit card can help you rebuilt your credit history if you’ve had a run of bad luck and now have a low credit score.
To open a secured credit card, get ready to deposit some money into your bank account that the card issuer will hold as collateral. Payments are made as a regular credit cards and are not taken form the deposit. Make sure you always pay on time and as a result it will positively affect your credit score. The most significant aspect of your credit score is payment history as it accounts for 35% of your total credit score.
Keep your Utilization Low
Having a credit or secure card can be tempting because money is always available to spend. But make sure to be careful not to max out your cards. Your credit utilization ratio is your current balance on a single credit card compared to that card’s credit limit. For example, if your credit limit is $500 and you have a balance of $250, your utilization rate is 50%. Most experts will tell you to keep your ratio below 30% on any card. Your credit utilization ratio represents 30% of your total credit score.
One simple advice is to keep your utilization rate low is to ask for an increase of your credit limit to your bank. For example: if you usually have a $250 balance in your card on a limit of $500 your utilization ratio would be 50% and if your bank raises your credit limit to $1000, your utilization rate will drop to 25%.
Another useful idea is to pay your cards more than once a month. This will both allow to keep your utilization rate low and help you to make a good habit of paying your cards on time which benefits your payment history.
Do Not Close Old Credit Cards
Another element of your credit score is based on the age of your oldest card and the average of all your credits. Closing out the oldest card can alter the age range of your credit which might reduce your credit score. For instance, if you had a credit card for 5 years and another for 1, the average age of your credit is 3 years. But if you cancel the older card the age of your credit will be reduce to only 1 year negatively affecting your credit score.
Keeping older cards open even if you don’t use them is usually a good idea.
In conclusion, the more you can strengthen your credit, the more options you will be presented for financing. Loan and credit approvals will be faster and financing amounts and interest rates will be lower.
To help you achieve this we’ve created an easy to follow info-graph that you can see below and download for free here.