Check your credit score, then take steps to improve it.
Credits scores play a very important factor in determining where you’ll end up living and working, as well as how much interest you are charged on mortgages and other loans. The truth is, credit scores can have a major impact on your life and wallet! That’s why Fair Isaac, the creators of the FICO scoring system, include so many aspects of your credit when creating a score for your credit profile. The FICO scoring system is broken down into the following percentages and categories:
- 10% Unused Credit
- 10% New Credit
- 15% Length of History
- 30% Amounts Owed
- 35% Payment History
Your FICO credit score is created and derived from these five categories and can range from a low 350 up to the highest score possible of 850. Most of us, however, do not make it to 850. Given that, what makes an acceptable credit score? You want your score to be above 700 in order not to be considered a credit risk. So are you there yet? If not, here are three simple steps that can assist you in raising your score today!
How To Improve Your Credit Score In 3 Easy Steps
#1 Pay your bills on time!
This seems like a no-brainer, but many people fail to do this. Once a bill becomes 30 days late in payment, your credit history takes a hit, and the credit score begins to plummet. So, one of the best things you can do for your score is to pay your bills on time or at least before they are 30 days past due. This action is included under the largest category for determining your score: “payment history.” Also, if you are struggling with paying credit card payments on time, then you may want to consider calling your creditor to ask for a hardship program or you may want to find a licensed credit counseling service in your area to assist you with your debts. You can find such a service through this link.
#2 Diversify your debt.
The second action you want to take to improve your credit score is to spread your debt out. You have heard people say, “do not put all your eggs in one basket,” right? This statement holds true for banks, investments and debt. You do not want all of your debt on one credit card, where your credit limit is maxed out. It is far better to spread the debt out and use only half the credit limit on each card. Here is an example: say you have two cards and both cards have a $4,000 limit. You have one card completely maxed out at $4,000. The other card has a zero balance. It would be far better for your score if you transfer $2,000 from the maxed out card to the other card that has no debt on it. This way, you are only using half of the credit line on each card which makes you look like less of a credit risk. This factor is included in the category of “amounts owed” and makes up 30 percent of your credit score.
#3 Check for errors in your credit report.
Finally, you want to pull a copy of your credit report and look for errors. The credit reporting agencies are notorious for placing erroneous items on credit reports. These could include items that you have paid for, but are designated as “unpaid”, collection accounts, and accounts that may have a name similar to yours, but are not yours. You can pull a copy of your report from each of the three agencies (Equifax, Experian and TransUnion) for free at AnnualCreditReport.com.
Review each report and dispute any errors. All three agencies have a link on their web sites where you can dispute items online. Removing any derogatory items can cause your score to rise very quickly since this item also falls under the “payment history” category. If you can implement these three steps, you are sure to see your credit score improve.
Contributing Writer: Selena
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