Credit scores are like a report card for your money. The Big Three consumer reporting agencies, Equifax, Trans Union, and Experian, check your credit every day, so you can't avoid having a credit score. Then, these agencies give your scores to any lender who asks for them.
A FICO score is another name for a credit score. If your credit score is low, you might not be able to get a loan for a house or car. Your low credit score can also hurt your finances because it usually means that you have to pay more each month for any money you borrow.
But there is still hope! By taking the right steps, you can make a big difference in your credit scores. Here are seven things you can do to raise your credit score.
Tip #1: Check your most recent credit reports from each of the Big Three bureaus:
Find out your current credit score from each of the Big Three consumer reporting bureaus. This is the first step toward improving your credit score. There are many websites where you can get this information for free. To find one, use the words "free credit report" in your favourite search engine to find them.
Tip #2: Fix any obvious mistakes right away:
Download the report, go through it item by item, and circle any clear mistakes you find. Unpaid balance flags that are wrong, credit accounts that you never opened, and wrong information about your current address are especially important. You need to take each of these mistakes very seriously and tell the credit agency and, if necessary, the lender about them.
Pay your bills on time:
This seems like common sense, but people with credit problems often don't do it because their debt keeps getting worse. It's very important to pay your bills on time, and these days, even utility companies report your payment history to credit agencies. Tip: If you want to improve your credit score even more, pay off your credit card bills before the end of the billing cycle. This has the good effect of keeping any charges you made that month from showing up as a balance on your cards. This improves your ongoing debt-to-credit limit ratio (see Tip #4).
Tip #4: Get your ratio of debt to credit limit down:
The Big Three credit agencies use your debt-to-credit limit ratio to figure out how creditworthy you are. As the name suggests, this ratio is just the result of dividing the total amount you owe on all of your credit cards by the total amount you can borrow on all of them. The ratio is always a number between 0 and 1, and the best numbers are those below 0.5. There are two ways to lower the amount of your debt compared to your credit limit. One way to do this is to just pay down your credit card balances. Another option that many people don't think of is to ask your creditors to raise your credit limit.
Tip #5: Get rid of your debt instead of just moving it around:
Transferring debt from credit cards with higher interest rates to those with lower interest rates can be a good idea, but it won't help you get out of debt faster. Moving your debt from one card to another won't help your score.
Tip #6: Don't close credit cards right before you apply for a loan:
Some people think it's a good idea to close out some of their credit cards right before they apply for a loan. But this is not the case. On the contrary, it makes your debt-to-credit-limit ratio go up quickly, which is bad for your credit score. In fact, it can be a good idea to keep more than one credit card as long as you have the willpower to use them wisely. Then, use these extra cards occasionally, charging small amounts and paying them off quickly. This shows that you can handle your debt well, which is a good thing for your credit score.
Tip #7: Know how bankruptcy affects your credit score:
As a final note, be aware that if you've ever filed for bankruptcy, it can be hard to get a better credit score. For 7 to 10 years, a bankruptcy can stay on your credit report.
