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Improve Your Credit Score
How to Improve Your Credit Score: this articles explains how to fix a credit report problem and build credit. Report problems on your credit report to agencies, building credit with on-time payments, and keeping out of debt are all ways to improve a credit score.
When it comes to your personal finances, one of the most important things you can pay attention to is your credit score. A credit score is like a snapshot of what your personal finances look like at any one point in time. Your credit score is what shows lenders – from your mortgage lender to a car dealer to a credit card company – whether you are able to pay back a loan. It shows whether you are credit worthy, which is another way of saying that you can be trusted to meet a loan obligation that you enter into.
Reasons you want a better credit score
There are two main reasons that you want a better credit score. (Hint: The higher your credit score on a numerical scale, the better. This is not golf.) The first reason is to get approved for a loan in the first place. Your credit score will play a large part in whether or not you can buy the house you want, or whether you get the car you want. Your credit score will also help determine how high your credit limit is on your credit card.
The second reason that your credit score is important is that it will help determine what kind of interest rate you will get. If you have a high credit score, you will be able to get a lower (or better) interest rate. With a lower credit score, you will pay more in interest charges. Over the life of the loan, this can mean thousands of dollars in differences. A higher interest rate means that you will ultimately pay much more than if you get a lower interest rate.
You can see why it is important to do your best to improve your credit score. It could mean the difference between approval and denial – and the difference between paying $1,500 in interest charges or $8,000 in interest charges (or even more on a home loan).
5 things you can do to improve your credit score
1. Make payments on time. Make sure that all of your loan payments are made on time. This includes medical bill loans, auto loans, credit card payments and any other loan payments. Being on time reflects that you are punctual in your obligations, and that the lender will not constantly be trying to collect from you. Also, realize that paying late on rent and utility bills can also reflect on your credit. Some companies and landlords will report you if you are tardy, and this can damage your credit score.
2. Check your credit report. Your credit report is an essential bit of your financial history. You need to make sure that it is accurate. You have a right to one free credit report from each of the major credit bureaus once a year. But even checking once a year is often not enough. You should check every four to six months to ensure that the information in your credit report is accurate and have errors fixed. Inaccuracies can lead to a lower credit score.
3. Keep your debt low. One of the biggest deals with regard to your credit score is the ratio of how much credit you have available to how much of it you have taken advantage of. If you have credit cards that are nearly maxed out, that reflects poorly on your credit score. It is best to try and keep your debt to about 50 percent of what is available. If you have $1,500 available on a credit card, try and keep the balance to no more than $750. It is best, of course, to realize that paying your credit cards off every month is important. Also remember that the type of debt you have is important. A store credit card is more harmful to your credit score than a major bank credit card. A payday loan is more harmful to your credit score than an auto loan.
4. Avoid too many credit inquiries. Every time you apply for a loan, and even when you apply for other things, someone looks into your credit. They want to know your credit score to see if it is likely that you will pay back your loan. When someone looks at your credit score, it is known as an inquiry. A hard inquiry is when you request it so that you can get a loan. This is the type of inquiry that impacts your credit score. (A soft inquiry is one that is initiated for offers sent to your mailbox. This does not affect your credit score.) A lot of hard inquiries in a short period of time can be especially damaging to your credit score. Try to limit credit inquiries to two or three in a six month period. Also, realize that some landlords, employers and insurance companies now check your credit score, and these can lower the score as well.
5. Pay attention to length of credit history. Understand that time is an important factor in your credit score. The longer you have had a credit history (and – more importantly – a good credit history), the better your credit score. This is why many parents help their teenagers get a car loan or a credit card. This way they can start to build a good history. It can also help to keep your first credit card open, even if you do not use it. This way, it shows that you have a longer credit history.
With some careful planning, you can create a good credit history that is backed up by a good score.
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