Your credit score gives you buying power and determines how much you will pay for that buying power now and over time. Increasing your score just a few points will make a difference in both of those areas too.
If your credit score is high enough, you’ll have no problem qualifying for lenders’ best rates on everything from credit cards to auto financing, home loans insurance and even small business loans should that be a goal or desire.
Here are 7 first steps you need to take when looking to improve your credit rating.
1 – Order Your Credit Report
Your credit score is based on your credit report. Therefore, you should always begin your credit score improvement efforts by ordering and reviewing your credit report for accuracy.
2 – Check Your Credit Report Information for Inaccuracies.
Check the identifying information on your credit report for name, social security number, birth date and address. Make certain that old negative marks and paid-off debts are deleted. Also check for accounts and delinquencies that are not yours, as well as late payments, charge offs, lawsuits, judgments or paid tax liens older than seven years old. Also, paid liens or judgments that are listed as unpaid, duplicate collections, bankruptcies that are older than ten years and any negative information that is not yours should be disputed too.
3 – Always Pay Your Bills on Time
Payment history makes up more than a third of the typical credit score. If you paid bills late in the past, you can improve your credit score by starting to pay your bills on time. Lenders are looking for any sign that you might default and a late payment is a good indicator that you are having financial difficulty.
4 – Keep Credit Cards Balances Low
Carrying smaller balances is the best way to increase your credit score. Your credit score measures how much of your limit you use on each credit card or other line of credit and how much of your combined credit limits you are using on all your cards. Within 60 days, paying down credit card balances can increase your credit score by as much as 20 points.
5 – Try Not to Open In-Store Credit Cards
Although your first credit accounts can serve to build and improve your credit history, there comes a point when each subsequent credit application can reduce your score. New credit cards reduce the average age of your credit history and a department store credit card isn’t good evidence of credit worthiness. Every time you apply for a retailer’s credit card your credit store gets dinged.
6 – Be Conservative When Applying for Credit in General
Having at least one credit card that is more than 2 years old can help your score by 15 percent but make sure that your credit report is checked only when necessary. Or, if you are shopping for a home, try to apply for loans within a two-week period. By keeping the loan process within a two-week period, all of the credit report lookups are seen as one single request.
7 – Don’t Close Credit Cards or Other Revolving Accounts
Shutting down unused accounts that have outstanding balances without paying off the debt changes your Debt Utilization Ratio, which is the amount of your total debt divided by your total available credit. It will reduce the gap between the credit you are using and the total credit available to you and that can hurt your credit score.