If you are looking at borrowing from any lender, whether it be a mortgage, car loan, credit card, or even insurance, your credit score will likely be the first thing checked when you fill out a credit application to see if you are worthy of lending to. While income is definitely factored in for loan approval, credit score is what will decide which rate and terms you can get, or if your score is too low, even being turned away at all. Even the slightest increase from the best rate could cost you hundreds in extra interest dollars a year, or on a mortgage, could be in the thousands. If your score could use a boost, take a look at a few ways that you can start to increase your credit score starting now.
Regularly Check Credit Report for Errors
If you have not checked your credit report in a while you could be in for a huge surprise when it comes time to submit an application, especially if you are like most and think your credit is perfect. By regularly checking your credit report you can ensure that not only is everything accurate with your information, but that all of the accounts are correctly reported, and that more importantly, they are yours. Keep in mind that reports are usually a month or two behind, in case you are wondering why balances look a little off.
Never Miss a Payment
Payment history is a significant portion of your credit score, so if you have had issues with late payments in the past, by making every payment on time going forward, you will see your score tick up every month that an on-time payment is made. Late on a credit report is when a payment is more than thirty days late, but you should avoid letting them get that far out. By making them on or before the due date you can ensure that you will not be charged any late fees, or even worse, get a boost in interest rate by having a pattern of being late.
Pay Down Balances
Another one of the largest portion of your credit score is made up of credit availability, which is your debt, compared to what your credit limit is, so the closer you are to hitting your credit limit, the more your score will decrease. By paying down your balance each month (and not continuing to use the card), you will be able to increase how much room you have to your available balance, and therefore start to see your score continuing to rise.
Keep Accounts Open Even at Zero Balance
As you get closer to getting your account down to a zero balance and then finally paying it off, your first instinct may be to close the account so that you can avoid using the card going forward. While you could be giving yourself a little protection from going on a spending spree, this will actually hurt your credit score when closing the account because now you have eliminated any available credit and you could see your score significantly decrease. If you do have accounts that you want to close, just cut up the cards so you do not use them any longer, but keep the accounts open, even if at a zero balance.
Limit Credit Applications
Each time that your credit is pulled for application approval purposes, your score could be lowered by each “inquiry”, as it is called, so it is best not to overload yourself with credit applications unless you are sure that you are going to proceed. It could give lenders the wrong impression that you are looking to charge up accounts. On the other hand, if you are looking at making a large purchase in the upcoming months, such as a mortgage, it is best not to take on any additional debt, so that any extra monthly payments that are to be made do not affect your debt to income ratio, and may throw off a mortgage approval.
In the end, it is best to live modestly and within a budget. Sure, everyone enjoys the finer things in live, but living a lavish lifestyle that you are not able to afford will catch up with you. Take it from me who spend more than I had in my early twenties, which only led to years of getting out of a credit jam. If you can drive an affordable car, do not become “house poor”, and limit spending, you can be financially successful for years to come.