7 Easy Ways to Improve Your Credit Score

Need to boost your credit score?

Here are 7 easy steps to take when it comes to improving your score. 

Watch those credit card balances

One of the major factors in your credit score: how much revolving credit you have versus how much you’re actually using. The smaller that percentage is, the better it is for your credit rating.

One of the best ways of boosting that score is to pay down your balances.

“Having the ability to use a lot of credit is good, but you have to have low balances,” she says.

What you might not know: Even if you pay balances in full every month, you could still have a higher utilization ratio than you’d expect. That’s because some issuers use the balance on your statement as the one reported to the bureau. Even if you’re paying balances in full every month, your credit score could still reflect your monthly charges.

One strategy: See if the credit card issuer will accept multiple payments throughout the month.

Eliminate “annoying” balances

“Annoying balances” are the small balances you have on a number of credit cards.

The reason this strategy can help your score: One of the items your score considers is just how many of your cards have balances.

So charging $50 on one card and $30 on another, instead of using the same card can hurt your score.

The solution to improve your credit score is to gather up all those credit cards on which you have small balances and pay them off. Then select one or two go-to cards that you can use for everything. That way, you’re not adding a lot of balances on your credit report.

Leave (good) old debt on your report

Some people mistakenly believe that old debt on their credit report is bad. The minute they get their home or car paid off, they’re on the phone trying to get it removed from their credit report.

Negative items are bad for your score, and most of them will disappear from your report after seven years.

Good debt — debt that you’ve handled well and paid off in a good time– is good for your credit. The longer your history of good debt is, the better it is for your score.

One of the ways to improve your credit score: Leave old debt and good accounts on as long as possible. This is also a good reason not to close old accounts where you’ve had a solid repayment record.

Use your calendar

If you’re shopping for a home, car, or any loans, it pays to do your rate shopping within a short time span.

Every time you apply for credit, it can cause a small dip in your score that lasts a year. This is because if someone is applying for multiply applications for any credit, that means they want to use more of it.

However, with mortgage, auto and more recently, student loans — scoring formulas allow for the fact that you’ll make multiple applications but only take out one loan.

The FICO score ignores any such inquiries made in the 30 days prior to scoring. If it finds some that are older than 30 days, it will count those made within a typical shopping period as just one inquiry. The length of that shopping period depends on the credit score used.

If lenders are using the newest forms of scoring software, then you have 45 days. With older forms, you need to keep it to 14 days.

Don’t put away bills in favor of a down payment

If you’re planning a big purchase, like a home or a car, you might be scrambling to assemble one big chunk of cash.

While you’re juggling bills, you don’t want to start sending bills late. Even if you’re sitting on a pile of savings, a drop in your score could ruin it for you. One of the biggest factors in a good credit score is simply month after month of good on-time payments.

Saving money for a big purchase is very smart, just don’t forget about regular bills or pay them on time.

Don’t hint at risk

Sometimes one of the best ways to improve your credit score is to not do something that could sink it.

Two of the biggest mistakes are missing payments, paying less or charging more than you normally do.

Other changes that could scare your card issuer, but not necessarily dent your credit score is, taking out cash advances or even using your cards at businesses that could indicate current or future money stress.

Don’t obsess

The only time you really have to think about your score is when you know you’ll soon need credit. Otherwise, just take care of your bills responsibly and don’t worry about it.

If you are getting ready to make a big purchase, such as a home or a car, at least spring for a copy of your credit scores a few months in advance.

While the score you can buy may not be the exact same one your lender uses, it will grade you on many of the same criteria and give you a good indication of how well you’re managing your credit.

Another smart move is to regularly keep up with your credit report. You’re entitled to one of each of your three credit bureau reports (Equifax, Experian and TransUnion), for free every 12 months.

The Worst Kind of Debt to Have is..

What is the worst kind of debt to have?

Is it student loan debt, credit cards, a mortgage — or something else? Not even experts can agree which debts are “good debt” or “bad debt.”

Student Loan Debt

Why it’s bad: The loans are often given to young people with no credit experience and need financial assistance while attending school.

Balances are often high, and the jobs borrowers counted on to make payments may be non-existent. Unfortunately, some borrowers don’t end up graduating or delayed, while still being in debt.

Finally, unlike every other type of consumer debt, it is very difficult to discharge balances in bankruptcy.

And why it’s not the worst: College graduates, on average, still earn significantly more over their lifetimes than those without a college degree. So in a sense, student loan debts can be considered an investment that pays off in future earning power.

In addition, students may be able to defer payments on their student loans during times of economic hardship, which makes them more flexible than other types of loans. Also, borrowers may be eligible for reduced payments and loan forgiveness under the Income-Based Repayment Program or other loan forgiveness programs.

How does student debt affect credit scores? Even large balances typically don’t hurt credit scores as long as the payments are made on time.

Credit Card Debt

Why credit card debt is the worst: With interest rates hovering around 15% on average — and more than 20% for some borrowers — credit card debt is often the most expensive kind of debt consumers carry.

And with the low minimum monthly payments that issuers offer, cardholders can find themselves in debt for decades if they aren’t careful with it.

And why it may not be: While making minimum payments on credit cards is not a great idea over the long run, having that option is very handy especially if you are very tight financially.

It can give cardholders time to get back on their feet without ruining their credit.

And when consumers can’t pay back credit cards, they don’t have that much to lose — at least when compared to falling behind on a home or auto loan.

A credit card companies are able to sue a cardholder for collection, but that usually happens only after months or years of not paying, and after there’s an opportunity to work out some kind of settlement on the debt.

As long as cardholders keep balances low (usually below 10 to 30% of their available credit), and make minimum payments on time, credit card debt should not hurt credit scores.

Mortgage Debt

Why mortgage debt is the worst: If you wonder how bad mortgage debt can be, just ask the owners of some 8.8 million homes that CoreLogic said had negative or near-negative equity as of the second quarter of 2013.

That means those owners owe more than the property’s worh

That also means they can’t sell those houses without without shelling out money to pay off their mortgage or doing a short sale that damages their credit scores.

Even for those who aren’t underwater, rising taxes and/or insurance premiums, the cost of maintenance, and loans that typically take 30 years to pay off can make one’s home feel like a financial prison at times.

And why it may not be: Over time, home ownership remains one of the key ways average Americans build wealth.

If you are able to keep up with your home loan payments, eventually the home will be paid off and provide inexpensive housing or rental income.

Equity that has built up can be accessed through a reverse mortgage or by selling the house, or it can be passed along to heirs — sometimes tax-free.

When it comes to credit scores, this type of loan will generally help, as long as payments are made on time.

Even large mortgages shouldn’t depress credit scores, unless there are multiple mortgages with balances.

That’s usually a problem that affects real estate investors, though; not homeowners with one or two homes.

Tax Debt

Why tax debt is the worst: If you owe the IRS or your state taxing authority for taxes you can’t pay, you can suffer a variety of painful consequences.

If a tax lien is filed, your credit scores will likely plummet.

In addition, these government agencies usually have strong collection powers, including the ability to seize money in bank accounts or other property, or to intercept future tax refunds.

And why it may not be: The IRS offers repayment options that may allow a tax debt to be paid off over time at a fairly low interest rate. (Similar programs are available for state tax debt in many states.)

And unlike applying for a loan, you don’t have to have good credit to get approved for an installment agreement.

The good news when it comes to credit scores is that tax debt itself isn’t reported to credit reporting agencies; a tax lien is the only way that it may show up.

By entering into an installment agreement, you may be able to get a tax lien removed from your credit reports, even before you’ve paid off what you owe.

Auto Loan Debt

Why auto debt is the worst: The average auto loan now lasts five and a half years.

That means payments will last long after that new car smell has worn off, and well into the years when maintenance and repair costs start adding up.

Even more troubling, these borrowers may be stuck if they need to sell their vehicles since they may be “upside down,” owing more than what they can sell their car for.

And why it may not be: Many consumers budget for a car payment, and as long as they aren’t hit with unexpected expenses, they are able to make this payment a priority.

Borrowers may be able to refinance their auto loans and lower their monthly payments. Plus cars often get people to work, where they can earn the money they need to pay off debt.

Vehicle loans that are paid on time can help credit scores, and are rarely a problem unless someone has several car loans outstanding at once, or misses a payment.

The Worst Kind of Debt

When it comes down to it, the worst type of debt is …  the one you can’t pay back on time.

If that happens, your credit scores will suffer, your balances may grow larger due to fees and interest, and you may find yourself borrowing even more as you try to keep up with your payments.

Remember to keep making payments on time and to be smart with your finances.

Understanding Mortgage Credit Scores

Your credit report is separate from your credit score, even though your score is based on your report. In addition to viewing credit reports from the three major reporting bureaus, you also should obtain your FICO score.

Credit Checklist

• Payment history — Do you pay your bills on time?
• Amounts owed — What is your overall debt?
• Length of credit history — How long have you been borrowing money? Lenders like it if you have a long credit history
• New credit — Have you applied for any new credit?
• Types of credit used —  Bank cards, car loans, student loans, etc.

What’s a Good Score?

The FICO scores range from 350 to 850; an 850 is the best and 723 is the average score in America.  You can expect good mortgage interest rates at the 720 to 760 level and up.

If you notice you are receiving a lot of zero percent credit card or lines of credit offers, your credit is probably in a good shape.

Homebuyers who pursue an FHA loan, one of the most common loan types for first-time purchasers, can usually secure a loan if their credit is 620 or over.

Free Reports

Your credit report is easy to get. Consumers can access one free credit report per year from each of the three reporting bureaus: Equifax, Experian, and TransUnion. The online report is generated after you answer a series of security questions and only takes about 10 minutes to complete.

Each FICO score costs approximately $15, but, this may save you thousands over the life of your mortgage if you end up with a lower interest rate.

Insurance

How do you know what a good score is and what a bad score is?

It’s a little bit tricky since different scores are calculated in different ways. Scores may range from around 300 to 900 with the average credit score in America being at about 740. Here is an approximate range of how credit scores are judged:
Excellent credit = 720 and above

Good credit = 660 to 719

Fair credit = 620 to 659

Poor/bad credit = 619 and below

How Credit Reports Affect Your Mortgage

Before you start house hunting and getting pre-approved for a home loan, check your credit report and get your FICO scores. Why? Your credit rating may be the single most important piece of financial information you have to obtain a mortgage at the best interest rate.

Checking your credit rating before you purchase will give you time to correct any errors and to clean up your ratings.

What’s in a Credit Report?

Credit reports are a history of your track record of borrowing and repaying banks, credit card companies, and any other lenders. When you apply to borrow money, the lender uses the credit report to decide if you are a safe bet, or a risk. They also base whatever interest rate they offer on that report and your score.

A credit report includes:

• Credit history. This includes account information detail, such as your payment history, and specifically information about accounts that may have been sent to debt collection agencies. It also includes the number of accounts you have and the type of each, and if you are in good standing with each.
• Who is examining your credit. Any inquiries by lenders or others about your credit is recorded as well.
• Any judgments against you, such as bankruptcy.
• Personal information about you, such as your addresses. Social Security number and your previous employers.

How to Request a Report

There are three major credit-reporting agencies: Equifax, TransUnion, and Experian. You can receive a free copy of your credit report once a year from AnnualCreditReport.com, which gets the reports from each of the three companies.

5 Habits That Can Ruin Your Credit

Habits are those activities we do unconsciously because we’ve done them so many times before. We’re not even fully aware when we’re doing them, and then the results tend to pile up unseen.

Of course, credit is one of those things that can suffer from bad habits. So let’s take a look at five bad habits that can ruin your credit:

1. Charging Everything to Your Credit Card

It’s easy to break out the card and charge everything. After all, why would you drive all the way to an ATM Machine or a bank, when you can just simply take out your card. But paying for everything with your credit card is a way to run up the charges without realizing it, and your monthly statement bill will be a shock. If you want to take advantage of credit card rewards by charging everything, make sure you check your accounts frequently so your statement doesn’t catch you off-guard.

2. Buying Discounted Items You Don’t Need

We’re hardwired to love a deal and we sometimes buy discounted items because we might need them in the future. But just because something is “on sale” doesn’t mean you should buy it. The important thing to remember is “Can you pay it off on time?” If you don’t, any credit card interest you owe on the outstanding amount will invariably erase any discount you had.

3. Dealing With Bills Later

When you get a bill in the mail, deal with it right away. Once you receive it, pay it immediately. But this only works if you’ve set a budget and know when your bills come in. Often what happens is, bills flow in, they get stuffed into one huge pile, and then you have to sort through your bills to figure out what happened that month and how you’re going to pay them all. And if you’re not careful, you might end up dealing with those bills after their due date, which has one of the biggest negative impacts on your credit.

4. Applying for Credit Whenever you Get a Chance

Whenever you apply for any credit card offer, your score is affected with a hard inquiry. Too many inquiries can drive your credit score down. Instead, you should only apply when you need to or if you are trying to build up your credit.

5. Complacency

This is the worst habit of them all because not only is it hard to spot, but if you keep ignoring the risks and responsibilities you have, it will inevitably lead to a lower credit score. 

One of the best things you can do is start to identify some of your bad habits that are impacting your credit and start fixing them. For instance, keeping tabs on your credit is an important part of that process. You can check your credit score using a free tool like Credit.com’s Credit Report Card, which gives you your score plus a breakdown of the major components of your credit score (payment history, credit usage, length of credit history, mix of credit and new credit) to see what areas you need to work on. And it’s equally important to check your credit reports, which you can get for free every year.

Remember: Good credit habits lead to good credit history which leads to a positive impact on your credit score.

How to Increase and Manage Your Credit Score

Are among the thousands who have been devastated by the economic blight that has swept across America over the last 5 years and are now looking to improve your credit score?

Now before you sprint into the credit race, first take a step back and form a spending plan or budget based on your income and fixed living expenses. Late payments are the single-most common factor that hurts credit scores! Make sure all your credit card payments on time and try to automate regular monthly payments so you don’t miss any.

The ratio of credit you use to available credit is just as important as your on-time payment history. If unpaid balances are more than 30 – 35 % of your available credit, that can lower your credit rating. Try not to carry large revolving balances on credit card accounts.  Ideally, try to zero out the balance at the end of each payment period so you don’t pay interest or at least bring your balance below 50% of your credit limit.

Length of your credit history accounts for the next biggest piece of your Credit score. The longer you’ve held an account in good standing, the better that is for your credit score. To credit agencies, new accounts imply that you need credit. That lowers your credit rating over the short-term — for 12 months from the time you open a new account — as well as the average age of your credit card accounts. Keep existing credit card accounts open!

Because lenders like to see a mix of card accounts, rather than one or two large revolving general-use credit card accounts, keep a good mix of accounts, including general credit, store credit and loans.

Mixing it up

Credit rating agencies divided account types into three major categories:

1. Revolving accounts, which include all basic credit card accounts, both general and store cards along with home equity lines of credit.
2. Installment accounts, which include auto, mortgage, home equity and student loans.
3. Open accounts, which included home utility, internet, cable, and cell phone service accounts.

Remember that once you start using credit cards, you’re beginning the lifelong journey of compiling your credit score. Make sure you lay down a strong foundation: that way your “credit Score” will increase in value and stand the test of time.