SolveYourProblem eLearning Series: Credit Scores
Help Me Improve
My Dreadful Credit Score
(
26 pages )
The Best Ways to Boost Your
Credit Score
Because
of the way credit scores are calculated, some actions you
take will affect your credit score better than others. In
general, paying your bills on time and meeting your financial
responsibilities will boost your score the most. Owing a
reasonable amount of money and being able to repay it will
show lenders that you take your finances seriously and pose
little threat of lost money. There are a few tips that, more
than any other, will boost your credit score the most:
Tip # 4: Pay your bills on time.
One
of the best ways to improve your credit score is simply to
pay your bills on time. This is absurdly simple but it works
very well, because nothing shows lenders that you take debts
seriously as much as a history of paying promptly. Every
lender wants to be paid in full and on time.
If
you pay all your bills on time then the odds are good that
you will make the payments on a new debt on time, too, and
that is certainly something every lender wants to see. Experts
think that up to 35% of your credit score is based on your
paying of bills on time, so this simple step is one of the
easiest ways to boost your credit score.
Paying
your bills on time also ensures that you don’t get hit with
late fees and other financial penalties that make paying
your bills off harder. Paying your bills in a timely way
makes it easier to keep making payments on time.
Of
course, if you have had problems making your payments on
time in the past, your current credit score will reflect
this. It will take a number of months of repaying your bills
on time to improve your credit score again, but the effort
will be well worth it when your credit risk rating rebounds!
Tip #5: Avoid excessive credit.
If
you have many lines of credit or several huge debts, you
make a worse credit risk because you are close to “overextending
your credit.” This simply means that you may be taking on
more credit than you can comfortably pay off. Even if you
are making payments regularly now on existing bills, lenders
know that you will have a harder time paying off your bills
if your debt load grows too much.
The
higher your debts the greater your monthly debt payments
and so the higher the risk that you will eventually be able
to repay your debts. Plus, statistical studies have shown
that those with high debt loads have the hardest time financially
when faced with a crisis such as a divorce, unemployment,
or sudden illness.
Lenders
(and credit bureaus who calculate your credit score) know
that the more debt you have the greater problems you will
have in case you do run into a life crisis.
In
order to have a great credit score, avoid taking out excessive
credit. You should stick to one or two credit cards and one
or two other major debts (car loan, mortgage) in order to
have the best credit rating. Do not apply for every new credit
line or credit card “just in case.” Borrow only when you
need it and make sure to make payments on your debts on time.
You
should also know that taking out lots of new credit accounts
in a relatively short period of time will cause your credit
score to nosedive because it will look as though you are
being financially irresponsible.
Tip #6: Pay Down Your Debts.
If
you have a lot of debt, your credit score will suffer. Paying
down your debts to a minimum will help elevate your credit
score. For example, if you have a $1000 limit on your credit
card and you regularly carry a balance of $900, you will
be a less attractive credit risk to lenders than someone
who has the same credit card but carries a smaller balance
of $100 or so. If you are serious about improving your credit
score, then start with the largest debt you have and start
paying it down so that you are using a less large percentage
of your credit total.
In
general, try to make sure that you use no more than 50% of
your credit. That means that if your credit card has a limit
of $5000, make sure that you pay it down to at least $2500
and work at carrying no larger balance. If possible, reduce
the debt even more. If you can pay off your credit card in
full each month, that is even better. What counts here is
what percentage of your total credit limit you are using
- the lower the better.
Tip
#7: Have a range of credit types.
The
types of credit you have are a factor in calculating your
credit score. In general, lenders like to see that you are
able to handle a range of credit types well. Having some
form of personal credit - such as credit cards - and some
larger types of credit - such as a mortgage or auto loan
- and paying them off regularly is better than having only
one type of credit.
 
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