Learn How To Improve Your Credit Score
Learning how to improve your credit score is a very smart financial move given the fact that we are all judged, financially speaking, by our credit score. Our credit scores are used by the financial industry to determine if we are good credit risks and if they should do business with us.
A high credit score shows lenders that we are financially responsible therefore we get better rates. When you get a mortgage or auto loan, the lender wants to be sure that you pay the loan back, on time and in full. They do not want your house or car back. To prevent that from happening they need some way to judge your financial character. Your credit score takes into account your payment history, length of credit history, total amount of outstanding debt and any delinquencies or bankruptcies you may have had. That is why your credit score represents your financial character in the financial world.
Unless you do not use a wireless provider, rent or have a mortgage, drive a car or buy insurance you need to be aware of what your credit score is. Insurance companies, landlords, mortgage companies and even your wireless provider bases your rates on your credit score. So if you think you may be paying too much for those services, check out your credit score, you may need to improve it to get better rates.
Step #1 – Work On Your Payment History
The most important step, and for some the hardest step, is improving your payment history. The reason payment history is so important is because 35% of your credit score is determined by it. The review process involves determining how likely you are to pay on time? Are you a late payer? If you are, how severe is it? How long past due do you make your payments? Is it all the time? Is there a pattern of late pays? They also look at the number of past due items you may have on file. Also, the number of delinquencies, liens, suits, judgements or collection items you have. All creditors worry that late payers may just give up and stop paying all together (and then they get your car or house back).
Help improve your credit score by just the one simple action of paying on time. Even if you just pay the minimum amount due, just make your payments on time.
Step #2 – Work On The Amount You Owe
The second highest percentage that makes up your credit score (30%) is called your credit utilization. This is the amount you owe compared to the amount of credit available to you. What is important to look at here is the number of accounts you have open with balances. Creditors try to determine if you are or could become over-extended. They do not want to see several credit cards that are all maxed out. They would rather see low balances on your credit cards that offer you high limits. That shows the creditors that you are not using all of the credit available to you, therefore you will most likely not over-extend and become a credit problem.
Help improve your score by avoiding a bad habit of automatically charging everything to your credit cards and maxing out your credit limits.
Step #3 – Work On Your Overall Debt
Debt can be paralyzing. It stops you in your tracks. And creditors can be very critical when you carry too much debt or the wrong kind of debt.
Too many opened accounts are damaging. Your credit score will stay low if you are always applying for new credit cards. It is preferable that you pay down the existing debt that you carry on your credit cards. Think about it, if you are applying for a loan and you are already overloaded with debt, that creditor understands that they are just one of many that you have to pay. Now, you may get a loan, however, you will probably pay the highest interest rate possible. Creditors get a bit nervous with applicants who are in debt overload. That creditor has a job to protect the company from bad credit risks and they do that by jacking up the interest rates and fees to individuals with high debt ratios. And that is all perfectly legal.
Help your score by paying down your debt and staying out of debt.
It’s Not Impossible To Improve Your Credit Score
If you are tired of paying too much for insurance, credit card interest or your wireless, do something about it. It’s not impossible to change your credit score if you really take the time to understand what makes up your score, how you can improve it and what creditors are looking for.