How to Improve Your Credit Score
Perhaps no other three digit number in our lives has a bigger impact on our day to day living than our credit score. And the surprising thing is how few people even understand what their score is and what it means. Let’s take a closer look at the credit score mystery and see if we can figure out how to improve it if it isn’t feeling well.
The first step in understanding your credit score is to realize that every time you make a credit transaction, there is a chance that the result is reported to a credit bureau that monitors your account. This can be both good and bad. If you are trying to recover your credit due to some bad decisions you made, then you want every on-time payment to be reported so you can build your credit back faster. But it can also hurt you if you are late on a payment or if you miss one entirely. Some cards, like the Sears Department Store card are notorious for reporting every transgression right to a credit bureau, other cards don’t bother at all as long as your account doesn’t stay delinquent for more than 60 days. It is all a toss up.
So, this naturally leads us to the best way to keep your credit score in tip top shape: don’t miss payments on any of your bills, including utilities. Even if this means that you can only pay the minimum every time, it is still better to send enough to get by than to miss a payment entirely. Of course, this is easier said than done since we all make mistakes sometimes, but ideally, you don’t ever want to miss a payment because you can never tell when that missed payment will be reported to your credit bureau.
The next sound tip is to do everything you can to keep all of your credit accounts less than 50 percent charged. Of course, if you just got a mortgage, that is impossible, but you can control how much you put on credit cards. If you have a card that is maxxed out and you want to super charge your credit score, put everything you have toward it and once it gets under 50 percent of the credit limit, the card company will almost always send a positive report to your credit bureau. You can watch your score jump 20 or 30 points in just a few months with this method. Keeping a lid on your credit cards is a great way to improve your overall credit score. Ideally, you should pay off your entire balance every month. That would be the best method for keeping your credit score near perfect.
A final tip is one that flies under the radar for most people. If you are settled with a credit card with less than ideal terms, you probably can’t wait to pay it off and close it out. But hold on there. By closing out that account, you are reducing the total amount of credit that you have available to you, and as a result, you suddenly appear to be using a much higher percentage of your total credit. This can send your credit score down a few pegs. The best thing to do is to keep the card active, but put it away, or call the company and ask for new terms. In cases where you are paying an annual fee, you’ll want to either call the company and ask them to cancel the fee, or just close out the card and take the hit on your credit score.