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Three Easy Tips to Improve Your Credit Score

If you want to buy a new car, a new home, apply for a credit card then you will need your credit score to be in good shape.  Basically, your credit score is your ranking on what type of borrower you are – are you safe for the lender or are they taking quite a risk by lending you money? 

You credit score is also known as FICO and is calculated from your credit report.  Your credit score can range anywhere between 300 to 850 points.  The higher the score, the more appealing you are to lend money to.  Not only does a lower score make you appear more of a risk, but it will also affect your interest rate on any loan. 

Want to improve your score to look more appealing?

Here are three easy tips to improve your credit score:

1) Check your credit report regularly to see what your score is and what is being reported.  Many individuals only check their scores when they are looking at taking out a new car loan or mortgage.  That’s not the time to find out your score is not where you thought it was. 

I recommend putting a reminder in your calendar to check your report at least once a year.  By adding an alert then you are sure to not forget. 

Make sure you actually look through the report when you get it.  Look it over for any errors to make sure it’s accurate.  When you’re done, file it with your important financial documents for the year. 

2) Make sure you pay your bills on time.  One way to do this is to establish automatic payments.  That way you never miss a payment for your utilities, student loan, car payments, mortgage, etc...  The weight of making your payments on time adds up to about 35% of your credit score.  So make sure you aren’t missing any of them. 

By setting up auto-draft on your bills you will eliminate the worry of having late payments.  You won’t have to depend on the post office to deliver your check on time, no more trying to count mail days to make sure it’s sent on time. 

If you’ve had missed payments in the past then make sure everything is setup on auto-pay so you can build up your payment history of being on time. 

3) Work on decreasing the total amount of debt you have.  By eliminating your debt that will greatly improve your credit score. 

Another huge factor in calculating your credit score is the debt utilization ratio.  The debt utilization ratio is the balance amount divided by the total available credit.  So if you have a credit card with a $3,000 balance and the credit limit is $5,000 that means you have a debt utilization ratio of 60%.  The ratio you want to strive to be under is 30%.  So you need to work on paying down debt so that you’re total debt balance is only 30% of the total available credit. 

The debt utilization ratio accounts for about 30% of your credit score, which is a pretty large chunk.  Make sure you’re working on paying down your debt.  One way to work on quickly paying down your debt is to make extra debt payments each month. 

Hopefully, you’ll be able to implement these three easy tips on increasing your credit score.  If you have any questions, please give us a call at 573-686-3053.