Your credit score is more important than you may think -- because it's now used for far more than just assessing you when you want a mortgage. Unbeknownst to many folks, credit scores are being checked by prospective landlords, employers, insurers, and even utility companies. Thus, it's well worth your time to check your numbers out and to work to improve your credit score. (My colleague Dayana Yochim has pointed out that doing so might save you as much as $100,000!)
Here are a bunch of ways you might improve your credit score:
- Check your credit report, and have any errors fixed by contacting the credit agency behind the report. There may be incorrect late payments on the report, for example, or a debt balance may be wrong, or a debt listed that isn't even yours! These kinds of things can depress your score.
- Shrink your debt. Owing a lot of money, perhaps by approaching the limits on your credit cards, is a strike against you. It's not easy to get out of debt, but it's very valuable to do so, as it can vastly improve your near-term and future quality of life.
- Practice good habits with your credit. Pay bills on time from now on, as late payments will ding your score.
- Don't open lots of new accounts, as that can lower your score, too. Few of us need more than a few credit cards. That said, if you don't have a credit card, do consider getting and using one (responsibly), as that's a good way to build a positive credit history and improve your credit score. There's no need to use it aggressively, though. Simply using it a little is enough.
- It can also boost your score to have at least one installment loan, such as a car loan, mortgage, or student loan, as regular payments on it will prop up your score. (Consider a credit union, as they often offer low rates.)
- Don't close out credit accounts that you're not using. It's counterintuitive, but doing so doesn't help your score and it could even hurt it. Why? Well, because credit agencies calculate how much you owe compared to how much you can borrow. By closing a credit card account, you lose that credit limit and the ratio of your current debt to your available credit will suffer.
- If you need or want to close an account, close a newer one. The length of time that you've had an account matters, so hang on to your oldest accounts.
- You can rearrange your credit debt to your advantage, too, by transferring some balances and spreading your debt over several cards. It's better to have few or no cards maxed out or nearly maxed out. Ideally, you should owe no more than about a third of your credit limit on each credit card. (Still, paying off that debt is a far more effective way to improve your credit score.)
- Try asking for an increase in your credit cards' limits. (Just don't get carried away and borrow more then.) A higher limit will make your debt profile better, as you will owe a smaller percentage of your total available credit.
Achieving and maintaining a high credit score can benefit you in many ways, saving you lots of money. And it's not rocket science, either. As Craig Watts, consumer-affairs manager of credit rater Fair Isaac has explained, you just need to "pay your bills on time, keep account balances low, and take out new credit only when you need it." So improve your credit score, and profit from it.
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