3 simple steps to improve your credit score
Your credit score is one of the most important numbers in your financial life. It’s the way banks and other creditors determine whether you are a good a bad credit risk when you borrow money. The higher your credit score, the lower the interest you will have to pay when you borrow money for things like cars, houses or credit cards. And conversely, the lower you credit score, the more interest you will have to pay when you borrow money.
So that probably leaves you with one important question. How can you improve your credit score?
Good news, we’ve got three simple steps to help you improve your credit score:
1. Pay your bills on time
It may seem obvious, but paying all your bills on time is the best way to make sure that you build and maintain a strong credit score. Paying your bills on time is one of the best ways to improve your credit score.
And on time payments also extend to items that aren’t usually associated with your credit report. That’s because if you owe money to a creditor like a library or department store they may eventually call a collections agency to get the unpaid bill paid.
2. Don’t close your older accounts
One of the biggest factors in determining your credit score is the length of your credit history. Older accounts or older debt is a good thing – as long as you keep making your payments on time.
Additionally, some people think they should call to remove old loans off their credit report once the loan is paid off. Don’t do that.
Negative items like missed payments are bad for your credit score, old accounts are not bad for your score. If you do have a negative item on your credit report, most of them will disappear from your report after 7 years.
The way to improve your credit score is to leave old debt and accounts in good standing on your credit report as long as possible.
3. Be mindful of your credit card balances
One of the biggest factors in determining your credit score is the available credit you have versus the balances you have on those cards. Generally speaking the smaller that percentage is, the better it is for your credit rating.
And many say that the optimal ratio is 30% or less.
If you want to improve your credit score, then pay down your credit card balances.
One important thing to note is that even if you pay balances in full every month, you could still have a higher credit utilization ratio than you’d expect. Because some issuers use the balance on your statement as the one reported to the bureau so even if you’re paying balances in full every month, your credit score will still weigh your monthly balances.
