You probably thought that once you left school, you would no longer have to worry about report cards. In the adult world, your credit report is the new report card that tells whether you'll be "grounded" or not. If your credit score isn't good enough, creditors will put you on probation and either not lend you any money at all or lend you money at very high interest rates.
Your credit score is a measure of how likely it is that you'll be able to pay back the money you owe. It is based on the information in your credit report. When you have a good credit score, you'll get better interest rates and be able to get more loans. This makes it possible to buy a new car or home.
Most of the time, lenders use the FICO score from the Equifax credit bureau, but Experian and TransUnion also have credit scores that lenders can use. You can buy your credit score at any time so you know where you stand when looking for a loan. It's a good idea to look over your credit score and credit report at least twice a year to make sure the information is correct and up-to-date. (You can get one free report from each credit bureau every 12 months, but you have to pay for your FICO score.)
There are five things you can do to make yourself a better credit risk and raise your credit score.
Fix the mistakes. If your credit report has mistakes and errors, it's likely that your credit score is lower than it should be. Every year, look at your credit report once or twice to make sure there are no mistakes.
Don't be late. You should try to make your payments on time all the time. However, if you know you'll be shopping for credit in the next few months, it's especially important that you make payments on time in the months before you apply for credit. Your credit score is affected much more by recent late payments and missed payments than by those that happened a few years ago.
Lessen your debt. A lot of what your FICO score is based on is how much you owe on credit cards compared to how much credit you have available. As a general rule, to get a better credit score, you should try to keep your balances below 25% of your total available balance.
Pay off the balance instead of moving it to a new card. Many people think that moving a balance from one credit card to another and then closing the old card is a good way to improve their credit scores, but that's not really the case. When you close a card, the ratio of available balances to used balances goes down, which could hurt your credit score. If you have 4 credit cards with a total limit of $8,000 and owe $2,000, that's 25% of your available credit. If you move all your balances to two cards and cancel the other two, the total amount of credit you can use is now only $4,000. Since you owe $2,000, you are using 50% of the money you can use, which will cause your credit score to drop.
Keep your credit card accounts that you don't use. If you know you're going to need some kind of credit soon, don't close any of your credit card accounts you're not using. When you close them, they take money from your balance. If you can help it, don't open any new accounts before you apply for a loan. Having a short credit history on an account lowers your score because there isn't a real record of how you've paid your bills. The average age of your credit accounts will also go down if you open new accounts. This is another big part of your FICO score.
