5 steps to better credit scores
You are done with school. Guess what? Your grades still matter. Your credit grade will save you thousands or cost you thousands. Good credit score equals better loan rates. Lower credit score and you may pay out thousands more in interest.
Here are 5 steps to better credit.
5 steps to better credit
- Correct blatant mistakes. Your credit score is only as good as what shows up in your credit report. Review your reports from all three credit bureaus for accuracy once a year as well as several months before applying for a loan. You can now check your credit score yearly at no cost to you. Changing a mistake on your report - such as a payment that is wrongly labeled as late — can take 30 days to three months, sometimes longer. This is easy to do, and can greatly improve your credit score.
- Pay your bills on time - ALWAYS. This is always a good practice, and it’s especially critical that you make prompt payments close to the time you need a loan. That’s because a late or missed payment in the last few months is likely to lower your score much more than an isolated late payment five years ago. Pay bills first, then eat. Simple as that. You already bought it and you owe it, so pay it.
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Reduce your credit card balances. A heavily weighted factor in your FICO score is how much money you owe on your credit cards relative to your total credit limit. Generally, it’s good to keep your balances at or below 25 percent of your credit card limit, said Jeanne Kelly, founder of The Kelly Group, which helps clients improve their credit scores.
- Pay off debt rather than just moving it around. Since the ratio of your credit card balance to your credit limit is key, closing out an account and transferring the balance simply means you increase that ratio, which is likely to lower your score. In other words, say you owe a total of $2,000 on four credit cards, each of which has a $2,000 limit. Your total credit limit is $8,000, of which your total balance ($2,000) accounts for 25 percent. If you transfer all your balances to two cards and cancel the other two, your total credit limit is reduced to $4,000, and your $2,000 balance now accounts for 50 percent of that limit. Pay it off, don’t move it around.
- Don’t close unused credit card accounts near loan time. If you have several credit card accounts but are only using a few of them, you’ll only raise your balance-to-limit ratio if you close the unused ones. You also shouldn’t open new accounts when applying for a loan if possible. If you have a short credit history or very few accounts, opening a new credit line may lower your score since you don’t have a proven track record, said Jan Davis, executive vice president at TransUnion. What’s more, a new account will lower the average age of your accounts, another factor in your FICO score.
So, pretty simple. Improve your credit score by removing bad info on your reports. Paying off debt on time and early greatly helps your credit score. Do not have too much credit, but mainting credit in an appropriate matter is important.
So go get your credit report from the credit reporting agencies eash year, and check the accuracy. Keep your score high and you will save thousands. Are you getting the grade?
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