5 Tips to Increasing Your Credit Score
Good credit is critically important because it directly effects every financial decision you will make in your lifetime. Unless you are a millionaire and can afford to pay cash for EVERYTHING, you will need to have credit to purchase a home, buy a car, or now, even have a good job. It is, thereby, imperative to maintain good credit to attain the best interest rates and avoid paying thousands of dollars of interest on loans.
What can you do to improve or even maintain your credit score?
#1 Pay Your Bills On-Time
Ensure you pay all of your bills on or before the due date. This includes mortgages, auto loans, student loans, credit card bills, and any debt that is report to any of the three credit bureaus.
#2 Pay Your Debts Down…Or Completely Off
Part of the calculation for credit scores include your credit utilization. If you are maxed out on some or all of your credit card bills (or close to maxing out), although you may be paying your bills on-time each month, it will negatively impact your credit score. The more you owe on your credit card bills, particularly if you have a balance over 30% of your available credit, it will lower your credit score; therefore, pay off your cards as quickly as possible!
#3 Do not be so Quick to Close Credit Cards
A percentage of your credit score calculation is also based on the longevity of credit cards (or other debt). The longer you have it, the more advantageous it is for your credit score. So, if you have two cards, one card you opened 10 years ago and the second card you opened last year, they take the average (in years) of your cards. So, your average credit card history would be about 5,5 years (10 years + 1 year divided by 2); however, if you close your 10 year old card because you paid it off, you credit history now drops to one year. Think twice before closing the cards you’ve had for a longer period of time.
#4 Have a Mix of Debt
Of course, I am not a proponent of having debt. I want you to pay it all off! But when it comes to credit scores, honestly, your score just shows how well you manage debt. So, creditors want to see how you manage a variety of different debts, meaning having a mortgage, student loans and revolving credit (credit cards) works in your favor when it comes to credit scoring particularly when you are good on #1 and #2. Do not, however, go out and get more debt to increase this section of your credit score calculation. Buying a home, getting an auto loan happens in time.
#5 Stop Opening Up Additional Credit Cards
You know when you go to a Department Store (or any store nowadays) and they ask you “Would you like to save 20% of your purchase if you are approved for our store card?” JUST SAY NO!!!! Credit inquiries, whether you are approved or not, negatively effect your credit score. Why? Because creditors think that you are trying to get into more debt by applying for more credit cards. Remember, just say no!
In essence, be mindful of how you handle credit. Paying on-time and have little to no balance on your credit cards directly impacts your credit score, which in turn, will directly impact your financial future. It is, however, never too late to begin building, re-building and improving your credit score. Follow these steps (and others) and you will be on the road to having success in your finances…including your credit!
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