Ways To Raise Your Credit Score
If you are in the market for a mortgage, a car note, or just about any other type of loan, your credit score is of utmost importance. Most lenders, when considering whether someone is credit-worthy, rely on what is called a FICO score. This score is a number between 300 and 850; the higher your score, the better. This number is calculated using fairly complicated algorithms, but it takes into consideration the types of accounts you have, whether you pay them on time, how long you've had credit, and other factors. If you are thinking about applying for credit in the near future, here are some things that you can do to maximize your credit score and get the best interest rates possible.
Fix Any Errors on Your Credit Report
While free versions of your credit reports won't tell you what your FICO score is, it's important to look over your credit regularly to be sure that there are no errors on your report that can bring your down your score. Go to annualcreditreport.com to order your free copies of reports from the major credit bureaus. When you get your reports, check them over carefully. You want to make sure that all accounts on the report actually belong to you and that you know what each account is. If you believe that there is misinformation on the report, you will need to let the applicable bureau know in writing.
Pay Your Bills on Time
This is the most important factor that's considered when credit bureaus determine your credit scores, so you already know how important it is to pay off your bills on time. Now here's how it actually works: Your creditors will report to the credit agencies if you pay a bill 30, 60, 90, or more days late. If you pay a bill less than 30 days late, however, it won't turn into a negative mark on your report, but you will probably have to pay fees.
If you're having trouble paying a particular bill, call the creditor. Sometimes alternate payment arrangements can be made and a late payment won't be reported. Another option is to quickly gather up any extra money you can in order to pay a bill before it hits that crucial 30 days later. Ask a relative to loan you the money, get a payday loan, or sell something that you aren't using anyway. If you borrow money, be sure that you can pay it back before you sign on the dotted line. If you're hoping to qualify for a mortgage or a home loan, do whatever you can to keep late payments from occurring.
Don't Apply for More Credit...
Another factor that the credit bureaus consider is whether you have a lot of inquiries on your report. According to MyFICO, if you pull your own report or if your existing creditors pull it in order to determine whether you're eligible for a higher credit limit, that does not negatively affect your score. If you apply for a new credit card, however, that can bring down your score a bit. If you apply for several new credit cards, that will reduce your creditworthiness.
When applying for your new car loan or mortgage, you can feel free to shop around, however. As long as the inquiries are from the same type of company (car loan financing departments or mortgage companies) and they occur within 14 days, they count as only one inquiry when it comes to scoring purposes.
...Unless You Have None
If your credit score is low because you don't have any credit to speak of, then getting a credit card and paying it off responsibly for a year or so can improve your score. Consider using the card for items that you would purchase anyway, such as groceries or gasoline. Then pay it off in full at the end of each month. If you can't pay it off in full, then at least make the minimum payment. Don't "max out" the card, either: Part of your score will take into consideration whether you are using all of your allotted credit, and if you are, it can shed a negative light on your overall creditworthiness.
Your credit score can be confusing, and if you currently have a low score, you may feel overwhelmed and frustrated. The good news is that responsible credit usage can positively impact your creditworthiness within a year or two, so even if your score is low, you can bring it up relatively quickly in order to buy the car or house of your dreams.