Even if you only raise your credit score, or FICO, by 50 points, you could save hundreds of dollars a month in lower payments. This is because the interest rate that lenders charge you for auto loans, mortgages, and credit cards is directly linked to your credit score. A better score can also make you eligible for special rates and deals that you may not be aware of right now because you are not on the "right" mailing lists because your score is not very good.
Here are 5 things you can do to improve your credit score faster.
First secret: Get your credit reports right away.
You should order your credit report from each of the Big Three credit reporting bureaus right now for two reasons: to find out your credit score and to check for identity theft. On the Internet, you can get your first report for free. And there are a number of online companies that will keep an eye on your scores, letting you know about problems and sudden changes. Be careful: if you find mistakes on your report, fix them right away.
The second secret is to pay on time:
Your past payment history makes up 35% of your FICO score. The bad thing about the current system is that you can pay on time for 5 years, but if you miss one payment, your score will drop by 20 to 50 points. Keep an eye out for your bills every month, and always pay them on time. And if you can't make a payment on time, call the lender and ask for a payment extension, telling them when you'll be late. This way, they probably won't tell your credit agency about the late payment for now.
Secret #3: Don't close more than one account in a short amount of time:
When you want to improve your FICO score, it may seem like a good idea to close some or all of your credit card accounts. But this can be a bad idea because it can make your debt-to-credit-limit ratio worse (see Secret #4). In fact, it can be a good idea to keep a lot of credit cards open and use one or more of them occasionally for small purchases, then pay them off quickly at the end of the billing cycle. By doing this, you will show your creditors that you are a reliable debtor.
Secret #4: Watch the ratio of your debt to your credit limit:
By figuring out your debt-to-credit limit ratio, 30% of your credit score is based on how much you owe creditors or lenders. This ratio is found by dividing the total amount you owe on all 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. To improve your ratio, you can either apply for more credit cards (but be careful if you haven't been able to control your spending in the past) or pay down your debt. I think you should do a little bit of both, but focus more on getting out of debt.
- Be smart about moving your debt from one card to another:
If you want to improve your FICO score, it can be tempting to keep moving your credit card debt from one card to another every month. But doing this won't help you pay off your debt and is not a good idea. The only time this isn't true is when you move debt from cards with higher interest rates to cards with lower interest rates. In fact, this is a very good plan. Just keep an eye out for things like transfer fees and other conditions, and take them into account when figuring out how much it will help you to make these transfers.
Improving your credit score can actually help you save money. Try each of these tips and you'll be well on your way to getting a better score.
