Your credit score can count for everything from obtaining reasonable interest rates on loans to whether you can rent an apartment. Even, according to a recent survey by Bankrate.com, whether someone is likely to want to date you. Unfortunately, not only is it lamentably easy to damage your credit score, it’s not so easy to raise it again, mainly because of the length of time credit blemishes remain on your record.
Billshark would like to recommend some ways to help you increase it.
- Pay bills on time
This may seem elementary, but it’s the primary way lenders assess your credit worthiness. This doesn’t just mean such bills as mortgage or rent and credit cards, but items you wouldn’t think of, like utilities, and even child support. Late payments on any bill will stay on your credit report for as long as seven years. The rule of thumb lenders use is, “Past performance predicts future performance.” If you’ve always paid your bills on time, chances are you’ll continue to do so, their reasoning goes.
- Pay more than the minimum payment
Even a few dollars more than the required minimum payment demonstrates that you aren’t cash strapped and counting every penny. Besides, most credit cards’ required minimum payments are barely enough to pay the interest on the balance and will end up costing you a fortune in the long run, so this is a good practice to follow regardless.
- Keep credit card balances low
If you have a credit limit of $5,000 on your Visa card, and a balance of $4,500, you’ll make lenders nervous that you won’t be able to repay it and thus lower your score. Keep your balances at least 30% lower than your credit limit (known as your “credit utilization” ratio).
- Lay off the credit cards
Credit bureaus calculate your credit score based on your statement’s closing balance at the end of the month, regardless of whether you pay it in full. Use cash or debit cards for purchases whenever possible.
- Pay down debt
Here’s a tried-and-true method for accomplishing this: Pay off your smallest balances first (e.g., to such places as home improvement and department stores), then apply that monthly payment to larger balances, beginning with the highest interest-rate card. This systematic approach not only makes the credit rating agencies happy because you’re using less revolving credit, but also allows you a painless way to pay off your bills with money you’re already spending on them. Of course, afterwards don’t charge any more on the cards you’ve paid off.
In addition, you can earmark the savings Billshark has found for you on your monthly bills toward this goal. And be sure to put any windfalls (tax refunds, bonuses, unexpected inheritances, etc.) toward paying off debt. It may hurt at the moment, but when you see your balances dropping, you’ll find it’s worth it.
- But keep old accounts open
Once you’ve paid off credit cards or loans, keep those accounts open, just don’t use them. This gives you a high credit utilization ratio. And older accounts give you “age,” meaning a longer credit history. On the other hand, don’t open new accounts you don’t need just to increase your available credit. They’re not “aged” accounts and won’t help your credit score; they could even impact it negatively because you won’t have a history with them.
Finally, you may have heard recently that the three credit reporting bureaus (TransUnion, Experian, and Equifax) will soon begin computing credit scores differently. This change will not take place until this fall, and will actually have minimal impact on consumers.
The new computation will affect those who make a major purchase. If one person who buys an expensive vacation has a record of responsible debt repayment and another who makes the same purchase does not, the new model will take that into account when calculating their scores and not reduce the first person’s score as much.
The other change affects the credit utilization ratio. Again, if two people have a high credit utilization ratio, but one person has shown he’s paying down his debt while the other isn’t, the first person’s credit score will fare better under the new system.
Either way, don’t count on new rules to keep your credit clean. Use these reliable methods to boost your score.