How To Start Improving Your Credit Score


Considering a loan for a house or a car? If so, your credit score will be a major factor in the interest rate you get or even if you get approved for a loan. Many Americans have seen their credit scores take a hit over the last couple years, so what can you do to start improving this all-important number if yours is lower than you’d like?

First, while there are steps you can take that will improve your credit score, it will take time. When it comes to credit scores, there are no quick fixes. Generally, you must be responsible in managing your credit over time for your score to improve.

Second, little things mean a lot. If a home mortgage lender, for example, offers reduced rates to borrowers with credit scores of 700 and above and your score is currently at 697, those three points on your score could cost you thousands over the life of a thirty-year mortgage. Just a third of point difference in your interest rate on a 30-year, $165,000 mortgage could mean close to $12,000 in additional interest costs over the life of the loan.

Following these suggestions can help improve your credit score:

• Know your score. Get a copy of your credit report. Scores of 760 and above will get you the best rates possible when you need a loan.
• Check the details. Verify the accuracy of the information on your credit report. If there are any errors, get them taken care of. Errors that are worth contesting include late payments, credit limits that are listed as lower than they actually are, accounts listed as anything other than “current” or “paid as agreed” if you have made scheduled payments, anything negative that is more than seven years old.
• Pay on time. The longer your history of paying bills on time, the better your credit score.
• Beware of balances. Even if you pay off balances completely each month, big balances can hurt your credit score. Limiting charges to no more than 30% of your credit card’s limit can improve your score.
• Not all balances are created equal. Paying off installment loans like car loans and mortgages is great, but paying down revolving loans like credit cards is even better. While this may not be the best overall financial strategy, your best bet for improving your credit score is to pay down the balance on the credit cards closest to their limit first. Lenders like to see a gap between a credit card’s limit and its outstanding balance.
• History matters. While there are reasons you would want to close old accounts that are dormant, using an older card now and then could actually help your credit score.
• Avoid new cards. Don’t open new credit card accounts to up your available credit. In the long run this could actually lower your credit score. Having newer accounts will give you a lower average account age, plus all that available credit could be a concern to lenders.
• Ask for forgiveness. If a lender has dinged your credit for making a late payment or two, they may be willing to eliminate it from your credit history if you have been an otherwise responsible customer. “Re-aging” is another possibility if your late payments were over a year ago and you’ve made at least twelve on-time payments in a row. This could eliminate previous problems from your credit report.
• Cluster shopping. Searching for loans over a long time period can hurt your credit score. FICO scores take into account rate shopping for a single loan over a short time period versus constantly cruising for new sources of credit. Be sure to bunch your inquiries for a car loan or mortgage.
• Out of sight out of mind doesn’t work. Getting rid of an account with which you have had credit problems does not make it go away. It will still show up on your report and could be included in your score.

While it may take some time, these steps could help you improve your credit score, and even a small improvement in your score could mean big savings when it comes time to take out a loan.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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