For many people, the credit score is a mysterious number. It’s not entirely clear how it is calculated, what is considered a “good” number, and how it could affect you personally.
In reality, credit and credit scores aren’t terribly difficult to understand. Understanding the basics can help your efforts to improve your credit score and make a change in just a few months.
Take Responsibility For Your Credit Report
Everyone is entitled to one free copy of their credit report per year from each of the three bureaus, and this is where you’ll want to start. Make sure to take advantage of those three free reports every year. A number of people have bad credit just because of mistakes on their credit report, which can be corrected. This can be completely avoided by looking at your credit report, and disputing any inaccuracies on your report.
When you are looking for inaccuracies in your credit report, be sure to look out for lines of credit that you did not open. If you find one, it may mean your identity was stolen. Free services such as CreditSesame can help you analyze your report and direct you on how to take action if you find any inaccuracies. If you rent your home or apartment, check out Rent Credit Hero, they can help you boost your score by sharing your rent payment history with agencies.
Keep Your Utilization Low
Keeping your revolving credit utilization (credit card debt) low will not only help you save money, but it will also help your credit score! Credit utilization is a measure of the amount of credit card debt you have compared to the total credit limit you have, and it plays a part in calculating your credit score. Using less of your available credit each month will positively impact your score, and will also make it easier for you to pay most or all of your balance each month.
Keep Some Unused Credit Cards Open
If you have a credit card that is just sitting in the back of your wallet, or at the bottom of your sock drawer, it may be tempting to close it out. But as described above, your credit utilization is affected by your total credit limit, so keeping seldom-used cards open will actually help your credit score. The exception is if it has an annual fee, in which case it may be better to close the account. The average age of your credit accounts also plays a role in the determination of your credit score – so closing out an old card that you don’t use can actually hurt your credit score!
Be aware that if a card goes too long without being used, the bank may close that account out for you. To avoid this, just charge something to your unused cards every 3-6 months. This will help you avoid any unwanted account closures.
Pay Your Bills on Time and In Full
On time payments are a huge factor in your credit score. Just one late payment can cause your score to drop drastically, so paying your bills should be your first and foremost priority. If you often forget to pay your credit card bill, turning on your credit card’s autopay feature may be helpful. This will automatically make a specified payment to your credit card each month, so you don’t have to remember.
An important consideration with automatic payments is what amount to pay. Ideally, it should be set to pay the full balance, but if you are carrying a balance and are anticipate you may not be able to pay the full balance, you should set the automatic payment to the minimum payment amount. This way, you’ll avoid overdraft fees from your bank and late fees from your credit card. However, you should set a reminder to make a supplementary payment in addition to the automatic minimum in this case so you don’t accumulate credit debt as a result.
Success is Achievable
What influences your credit should be understood, and repairing mistakes on your credit report is an important task that only you can do. Putting the concepts outlined above into action will certainly put you on the fast track to good credit. Keep in mind that credit repair takes time and patience. There is no quick or easy way to achieve a perfect credit score, but you can get there with dedication and diligence.