Even if your credit score has qualified you for car loans, student loans, a wallet full of credit cards, and a home loan, you still could possibly pay less. Did you realize that the lower your score the lower your interest rates and monthly payments? With an improvement in your score of just 50 points or less, you can save thousands in the long term. Don’t worry if you’ve already got the ball rolling on a mortgage, car loan, and several credit cards that are based on a previous credit report. You can take steps to improve it!
Be diligent about payments – Missing just one payment can mess up your score. Your payment history is a record of all of your scheduled payments and when they were paid. Instances of late or missed payments will chip away at your overall score. In fact, approximately 30% of it is calculated based on your payment history. If you are guilty of being a tardy bill payer, get into the habit of taking care of your financial obligations immediately. Improving this component of your credit can significantly elevate your score. If you are planning on purchasing or refinancing a home anytime in the near future, you’ll want to make sure that you keep your mortgage payments current. Having late home loan payments on your credit report can have a serious impact on how a mortgage company analyzes your risk.
Understand the concept of credit utilization – “Oh 2 tickets to Paris? No problem, my credit limit is $15,000!” Do not fall into the trap of thinking that just because your credit limit is a certain amount, that you are entitled to reach it, especially when you can not pay it all back quickly.
The percentage of your credit limit that you access is known as your credit utilization. When it rises above 30% of your total approved limit, your credit score may drop. Here is a simple way to calculate this figure to find out where you stand.
1. Obtain your current balance
2. Divide the credit card balance by the limit. For example, let’s say your balance is $5000 and your limit is $15,000 $5000 divided by $15,000 = 0.33
3. Multiply the quotient-in this case, 0.33 by 100 0.33 X 100 = 33%
Remember that a percentage greater than 30% may deflate your credit score. The credit utilization score is also 30% of your total credit score.
Keep those credit cards with low or zero balances – Closing a credit card account may decrease your credit limit, because they are linked to your credit utilization. When you decrease the amount of credit that is available to you, your credit utilization will go up and your credit score may go down. Keeping a few credit card accounts open with small balances that you pay off immediately can be a healthy move. The exception is those cards with higher fees. They may not be worth it in the long run and you can slowly better your score without those cards.
Do not apply for several lines of credit at the same time – When you apply for new lines of credit, inquiries are made on your credit report. Too much activity at once, especially for credit cards and some financed purchases, such as furniture or appliances, can lower your score by 3 to 5 points each time. Fortunately, there are limits on credit inquiries when you are buying a car or home.
Double check the accuracy of your report – Remember that time in 10th grade when you questioned your Algebra test score and ended up with a better grade? Do not accept a credit score without double-checking it as well! A recent report by the agency, US Public Interest Research Groups showed that a whopping 80% of all credit reports contain at least one error. Paying for theses inaccuracies in the long term can add up. Regularly monitor your score and dispute any information you question. The site, Quizzie.com enables you to obtain a free credit report and challenge suspected errors online.
As you strive to better your score, remember, “slow and steady wins the race”!