Whenever you try to repair or change something, Grandma’s always say to start with the basics. The same advice holds true for how to improve credit scores; just follow the basics.
3 Easy Steps To Improve Credit Scores
Step #1 – Order Your Free Credit Reports
You can order your free credit reports one time every year . Each of the 3 national credit reporting agencies offer a free credit report to consumers on an annual basis. You just need to make the call. You can contact these credit reporting agencies at their websites or by calling their toll-free numbers; both are convenient.
Check for the accuracy of the information on your credit reports because the credit reporting agencies are not responsible for any errors. These credit agencies are only responsible for reporting the data they receive, not correcting it.
Step #2 – Learn How To Read Your Credit Reports
Your credit score is calculated from credit data from your credit report; so it makes perfect sense to learn how to read your credit report.
Credit Report Data
Your Payment History
This category is the most important one and makes up 35% of your credit score; which is why paying your bills is very important. Your payment history is made up of a long list that includes credit card payments, installment loans, mortgage payments, bankruptcies, judgements, liens, collection accounts.
The Amounts You Owe
This category makes up 30% of your credit score. It takes into account how big your debt is; how much do you owe on all of your accounts, how many accounts you have credit balances on, the size of your credit limits compared to credit balances.
The Length of Your Credit History
The amount of time you have held credit accounts, the amount of time since there was activity on those accounts. This category is 15% of your credit score.
The Number of New Credit Accounts
This category is 10% which is not a large portion of your credit score, but it’s still worth understanding what the category is all about. This category analyzes the number of new credit accounts you have opened and the number of credit inquiries made.
Step # 3 – Monitor Your Financial Habits
Your financial habits can lower or improve credit scores, it just depends on what kind of financial habits you have. You are responsible for your financial habits; be sure to develop good ones.
The best way to improve your credit scores is to work on the two financial habits that affect your credit scores the most, amounts owed and payment history.
Amounts Owed: Only buy based on needs vs wants. We get ourselves in trouble when we buy things we want and do not really need. When we buy what we want, we have a tendency to overbuy, increase our debt and wreck havoc with our credit scores.
Payment History: Limit your credit card purchases to balances that you can pay off on a monthly basis; that way you will not damage your credit scores with large credit balances.