If you don’t normally give much thought to your credit score, but find you’re being rejected by lenders maybe now is the time to take action. Your credit score is essentially your credit reputation, or your history as a borrower. Since your credit score reflects your financial history, it gives lenders a basic idea of your creditworthiness.
This becomes important when you apply for a loan or a credit card. It’s easier for someone with a high credit score to get loans and competitive interest rates, while a low credit score can cause you to be denied a loan altogether. For this reason, it’s important that your score is both correct and as high as possible.
So, how can you optimize your credit score? There are many small steps you can take, but they can each have a big impact on your score. The following suggestions will help you boost, and maintain, your credit score.
Get a Copy of Your Credit Report
There are several ways to get hold of your credit report, but the internet tends to be the easiest. You can get your credit reports (not scores though) through Annual Credit Report.
There are other websites that say that also can give you a credit report, but please be aware that there usually fees associated with obtaining your report from these websites.
Now there is a free option to get a credit score. You can use Credit Sesame to get a credit score using data from Experian updated monthly. The free membership (no credit card required) allows you to see your credit score and you can also get suggestions on ways you can save money on your finances, like mortgages or credit cards.
I wrote a review on Credit Sesame if you’re interested in how it works.
Check the Report for Accuracy
Your personal information, such as your address and date of birth, should be correct and current. Any debt you have, as well as who you owe, will also be included. Delinquent accounts should be listed, as well as any criminal history. Generally the report will only contain information for the last seven years, so if anything older than that is included, contact the credit bureau, in writing, to have it removed. Any information that’s incorrect should be updated immediately. You can contact the credit bureau directly to do this as well.
Remove Bad Debts
Getting rid of any record of bad debts can have a very positive impact on your credit score. If your credit report shows any late or rogue accounts, get these back in good standing immediately. Sometimes you can contact these lenders to negotiate a payoff, or to set up a payment plan that’s more manageable for you. In any case, you’ll first want to pay any outstanding amounts, and then stay current on any future payments. Keep all accounts current if you can’t pay them off right away.
Sign Up for New Credit
If you don’t already have a credit card, get one. Be diligent about making payments on it and only use it when you’re sure you’re able to pay the bill. By having a credit card and using it responsibly you can establish a positive credit history for yourself. Make sure you pay at least the minimum, and always pay the bill on time. This will show that you’re consistent with paying back your debt, which will also help to raise your credit score.
Opt for an Installment Loan
Installment loans-such as car loans, student loans, and mortgages-are especially good for increasing scores, but you must be diligent about always making your payment. Never borrow more than you can afford to pay back. Also, be aware that when you apply for these types of loans, your credit score is often pulled. You often need to demonstrate a decent credit score to be approved. Additionally, applying for too many loans and being rejected will actually have a negative effect on your score, so be careful with this option.
Give Your Card a Break
When using your credit cards, don’t always use your card immediately after fully paying off the balance. If you have multiple credit cards, try to use each one every few months. You should also try to not use any one card more frequently to avoid a large balance to one lender. By using different cards and leaving gaps between full payments and use, it will look as if you’re not dependent on credit cards to live.
Avoid Large Balances
While having regular activity on your cards is important, carrying too much debt can make you appear financially strained, so be sure to pay balances quickly. Strive to pay off your credit card balance each month. If you’re unable to pay your balances in full, make sure you’re at least making the minimum payment due, and make sure it gets there on time.
Maintain Old Accounts
Keep older credit card accounts open and use them from time to time. The longer an account has been open, the more information on your credit history is available. Having an established relationship with a lender can indicate to other companies that you are a trustworthy borrower. By using older accounts that are in good standing you reinforce your established pattern as a responsible borrower.
By being aware of your credit score, you will have a general idea of your creditworthiness and your financial reputation to lenders. Striving to maintain good credit habits will pay off in the long run. With consistency and dedication, you can easily raise your credit score and get your financial life in order.
This article was written by William from Home Loan Finder. Visit Home Loan Finder to compare home loan interest rates.
Photo Credit: eliazar