A credit score is a three digit number, usually ranging from 300 to 850; the higher the score, the better the credit risk, and by having a better credit risk you could be offered more attractive interest rates on loans. The three main credit bureaus used to evaluate credit worthiness are Equifax, Experian, and TransUnion. Each of these credit bureaus has a slightly different credit range they use when making decisions. If your credit is run and found to be not at the level you expect, don’t fret! While blemished credit can be both stressful and costly, it won’t last forever. No matter how hopeless a situation might seem there are actions you can take immediately to move your credit score in the right direction.
1. Pay Your Bills on Time
One of the best ways to improve your credit score is to pay all of your bills on time. A person’s payment history affects 35 percent of their total credit score. It is imperative to pay at least the minimum balance before it is due. Delinquent payments, even only a few days late, can negatively impact your credit score.
2. Check Your Credit Report Annually
Mistakes can happen. In fact, one-fourth of credit reports contain a serious error, which can affect a credit score. Check your credit report annually. The three major credit bureaus offer a free credit report check once a year. This review will allow you to see any discrepancies or mistakes, and fix them immediately.
3. Develop a Credit History
For newly obtained credit, it is important to not only develop a credit history, but develop a positive and active credit history. Open a credit card account and pay it off responsibly. A great way to do this is to open a credit card, charge a low amount to it per month (anywhere from 20-50 dollars), and pay it off every month. This action creates a successful payment and credit history.
4. Keep Your Credit Card Balance Low
Even if your credit card maximum limit is $2,000 dollars, do not max out that limit. Carrying the maximum balance will actually hurt your credit score. A good rule of thumb is to keep your debt to 30 percent or less of your credit limit. For example, if your credit card limit is $2,000, do not exceed $600 of debt.
5. Establish Different Types of Debt
If you are financially able to obtain different types of debt, it would be beneficial to do so. Lenders like to see that you can manage diverse types of debt. A mix of major credit card loans, car loans, or home loans is healthy for a well-managed credit portfolio.
If you found this article useful, be sure to check out these related articles:
Five Ways to Reduce Your Credit Card Debt
Establishing Credit for Beginners
Credit Scores: GPAs for Adults