Consumers treat credit scores about the same way they do weight loss. They know their lives would improve if they did something about it today, but they keep putting it off until tomorrow.
Credit scores are vital to your financial health. They are used to judge your trustworthiness in repaying a debt. A good credit score – something north of 700 is a good goal – means you will receive good interest rates on any borrowing you do. Push the score above 750 and you likely qualify for the best rates a lender offers.
Low credit scores have the opposite effect. You may not qualify for a loan to buy a car, a home or get insurance for either one. In fact, you can be denied housing, utilities and pay outrageously high interest rates on credit cards, if you have a bad credit score.
So, a good score – preferably 700 or higher – matters. Here are some steps you can take today that will get you there.
How to Improve Your Credit Score
The fastest way to improve your credit score is to stop using your credit cards and pay down the balance on each and every one. Nothing beats making on-time payments every month, except maybe making them twice-a-month.
Don’t be afraid to devote some portion of every paycheck to reducing the balance on all debts, especially credit cards.
If you can get the balance on each card down to less than 30% of the available limit (e.g. under $300 on a credit card with a $1,000 credit limit), your credit score will start moving up. If you can get the balance down to zero, your credit score will jump up.
Here are some other steps that can improve your credit score:
1. Pay Your Bills on Time
If you’ve missed payments, catch up. If need be, set up automated reminders when payments are due. Or better yet, set up automatic payments from your bank account.
2. Don’t Close Old Accounts
Do not close the account on cards you no longer use. It will have a negative impact on credit utilization rate and average age of your accounts, two major factors in determining your credit score.
Keep the accounts open but keep paying on them so the balance goes down. The only reason to cancel a card is if there is an annual fee or some other transaction fee that is adding to your debt.
3. Monitor Credit for Errors
Monitor your credit report to make sure there are no inaccuracies that could bring down your score. You can request an annual credit report for free at annualcreditreport.com.
Monitoring your credit report will help alert you to identity theft if you see charges that don’t belong. Dispute a debt with creditors, bill collectors and reporting agencies if they are in error.
4. Limit Credit Applications
Do not apply for another credit card unless you really need one. Don’t pay off one credit card with another card. Opening multiple accounts in a short period of time is also a negative.
5. Work Out Payment Agreements
If you have overdue bills, bargain with the creditor to see if they will accept partial payments. If they do, have the creditor report the account as “paid as agreed.”
6. Get Professional Help
If you’d like to take these steps but don’t see how you can swing it, call a nonprofit credit counseling agency and ask for help coming up with a viable repayment plan such as a debt management program.