David Bakke writes about credit and debt on Money Crashers Personal Finance, a resource dedicated to helping people get out of debt and live within their means.
Your credit score could affect your credit card interest rates, insurance premiums and even your ability to get a job. Therefore, it is probably well worth your time to do what you can to improve it. Fortunately, small moves on your part could significantly improve your score and you probably wouldn’t have to wait forever to see the effects. And most of these ideas can be put into place without spending a lot of time.
1. Pay Bills on Time
Paying bills in a timely fashion accounts for roughly 35% of your credit score. If your utility providers offer the option of adjusting your due date, consider aligning all of your due dates so you only need to pay bills once per month. If that’s not possible, you should set up a calendar devoted strictly to due dates for bills to help you stay on track.
2. Maintain Low Balances, High Limits
You should have as much available credit as possible to show the credit reporting agency that you can handle your credit cards. For the cards you use the most, you should request credit line increases whenever possible, especially for cards with which you are approaching your spending limit. Opening up new lines of credit is another way to achieve this goal, but just don’t do too much of it in a short a period of time as this could actually hurt your credit score.
3. Limit Inquiries
Every time you apply for credit, an inquiry is notated on your credit report. Too many inquiries in a short period of time could negatively affect your score.
However, there are two types of inquiries: soft and hard. Soft inquiries generally do not negatively affect your credit; for example, requesting a copy of your credit report or a review of your file by the credit bureau is considered “soft.”
Hard inquiries are the ones you should watch out for. These are performed when you apply for a new credit card or any line of credit, in addition to auto loans, mortgages, and opening bank accounts.
4. Position Your Purchases
One thing you want to avoid is maxing out one credit card in your wallet while carrying little to no balances on the others. Exceeding a credit card limit likely will also negatively affect your score. To avoid the issue, you should spread your purchase out among a few different cards. Look into some of the best cash back credit cards for additional options.
5. Fix Errors
A fast way to improve your score is to remove any errors on your credit report. You can obtain a free copy of your report once per year from each of the three major credit reporting bureaus, so you should set yourself up on a schedule and review and monitor your report once every four months. You can also check your score for free at websites like Credit Karma or Quizzle. Look for anything that doesn’t belong on the report, along with any errors, and do what you need to in order to keep things up to date.
If you see an error, contact the creditor first, as this is usually the quickest route to solving your problem. If you have no luck there, online dispute options are available at each reporting agency. Just make sure that you dispute any errors with all three agencies.
6. Don’t Close Unused Lines of Credit
While you may think closing unused lines of credit improves your position, it could actually be detrimental. You generally want a large amount of available credit, so unused credit cards could actually assist your credit score. However, issuers may reduce your limit or even close your account if they notice extended periods of inactivity. To avoid this, put a few small purchases on each of the cards you don’t use very often and immediately pay off the balance.
When lenders determine interest rates on loans, your credit score is typically a main factor, and their cutoff points probably differ to some degree. If the cutoff is 700 for the desirable rate and your score sits at 695, you’re typically out of luck. This is just one reason why raising your score could be important. Losing just a few points could cost you when it comes to interest rates and insurance premiums. While there’s likely no need to worry if your score is less than perfect, increasing your score as much as you can will likely yield you benefits for years to come.
Do you know what your credit score currently is? What can you do to improve it?