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Finance 101

8 Tips to Improving Your Credit Score

Posted on February 12, 2015 by Kim Fein

Your credit score can have a major impact on your life. Not only do creditors typically check your score when deciding whether or not to approve your application and what interest rate to charge you if you are approved, but landlords, insurance companies, and even employers often check it as well. Having a good score can help you achieve your goals quickly and at the lowest possible cost.

The following 8 tips can boost your credit score:

  1. Always pay on time. Your payment history makes up the largest chunk of your credit score, so making your payments on time is extremely important.
  2. Pay down existing debt. Even if you have never missed a payment, a large debt load will lower your score. Explore ways you can lower your interest rates and free up cash to make more than the minimum payments.
  3. Avoid taking on additional debt. Besides paying down existing debt, make an effort to not take on more debt in the future. For revolving credit, ideally you should not charge more than you can pay off in full the next month, but at the very least, try to keep the balance well under half of the credit limit.
  4. Check your report for errors. Many reports contain score-lowering errors. Check your credit report from the three bureaus at least annually, and send a dispute letter to them if you notice any errors. You can get a free copy of your reports once a year at Annual Credit Report Website.
  5. Keep your old accounts. A long credit history with the same accounts indicates stability.
  6. Limit balance transfers. While transferring balances to “teaser rate” cards can be a way to efficiently get out of debt, it can also have a detrimental effect on your credit score. The accounts will be new and likely have balances close to the limit to maximize the advantage of the low rate – two factors that lower your score.
  7. Avoid excess credit applications. When you apply for credit, your score decreases just a bit. If you do it frequently, a creditor may see it as a sign that you need to rely on credit to pay your bills.
  8. Be patient. It may feel like credit mistakes can haunt you forever, but remember that your payment history from the past two years is much more important than what happened before that. Also keep in mind that most negative information is removed from your report after seven years.

Lenders use your credit score to determine your financial trustworthiness. They’re more inclined to give money to people who will successfully pay it back. To prove your trustworthiness, you must demonstrate through example. Also do yourself a favor and save some money. No one can legally remove accurate and timely negative information from a credit report. Don’t believe anyone who says they can, it’s a sign of a scam. The fact is there’s no quick fix for creditworthiness. You can improve your credit report legitimately, but it takes time, and a conscious effort.