Tired of worrying about your credit, and being punished for having a low credit score? The eight steps listed below will lead you to financial freedom. Some are easier than others, but by following even some of them your credit score will rise.
1. Be Patient
This one’s so easy, you don’t actually have to do anything! The older your credit file, the more stable it will be. If you have a proven, positive credit history, lenders will feel more comfortable extending credit to you. Your credit report is an ever-changing file: every time you use credit or make a payment, your credit profile and your score change. That means that any flaws you have in your credit history will disappear over time. Focus on handling your credit accounts in a positive manner and your credit report and score will improve.
2. Don’t Close Old Accounts
Even if you haven’t used an account for a long time, leave it alone; it will only help your credit score. The longer your positive track record and the lower your overall utilization rate (or the amount of credit you’re using compared to the amount of credit that’s been extended to you), the higher your credit score will be.
3. Keep Your Debt Load as Low as Possible
Pay your debts down! People with a lot of debt pose a greater risk than those with less debt. Maxed out credit cards mean a higher utilization rate, and a lower credit score. Keep your utilization rate low by paying down credit cards or negotiating higher credit card limits.
4. Don’t Apply for Multiple Credit Cards in a Short Time
Every time you apply for credit, the lender “inquires” about your credit history to one or more of the major credit bureaus (Equifax, Experian, and TransUnion). Too many inquiries in a short time span can lower your credit score, so only apply for credit or a loan if you really need it (not just because you get a free baseball cap or 10% off your retail purchase if you apply).
5. Use The Right Kind of Credit
Avoid finance companies, which are often the lenders behind retail credit card accounts and payday loans. They not only charge a much higher interest rate, but just doing business with “high risk” lenders like these can actually lower your credit score. Stick with major credit cards and bank loans. Also, make sure you’re getting credit for your great credit. Believe it or not, some lenders don’t report your account to the credit bureaus, so be sure to ask that they do.
6. Separate Accounts After Divorce of Death of a Spouse
Don’t let your ex-spouse’s terrible credit drag you down. If you were relieved of debt obligations in the divorce decree, make sure to follow up with all three major credit bureaus. Additionally, upon the death of a spouse, remove any of his or her debts for which you are not responsible from your credit report.
7. Correct Mistakes On Your Credit Report
It is so important to check your credit report from each of the three bureaus. You may find inconsistent or inaccurate information on one, two, or all three reports. Usually, the error will not be in your favor. Correct any mistakes and your credit score will improve.
8. Pay Your Bills On Time
This is the single most important thing you can do to build and maintain an outstanding credit score. Even if you can’t pay the entire minimum, send something. Then, follow up with a phone call to the lender to explain the situation. This demonstrates good faith to your creditors. If you absolutely can’t make a payment, call the creditor anyway. They are usually willing to work with you (and may even delay reporting the delinquency to the credit bureaus).
Simply follow these eight simple guidelines and you’ll be well on your way to credit score nirvana!
Carrie Davis is a personal finance blogger at SpendOnLife.com, a site dedicated to giving readers true and accurate information about credit, debt, and identity theft. She is FCRA-certified and has a passion for educating others on how to achieve financial independence.