Your credit score just might be the most important three-digit number in your life.
This number looks at your financial history and takes into account many factors. The FICO credit score, which is used by a majority of financial institutions, looks at the following:
- Your payment history on credit cards and loans
- Credit utilization
- The length of your credit history
- Type of credit used
- Past credit applications
According to FICO, the average credit score was 695 as of April 2015. This would fall into the “good credit” category, one below excellent credit, which comprises of scores of 720 and up.
Generally speaking, older individuals have higher credit scores than younger persons. This makes sense, as younger generations haven’t had credit accounts established for a lengthy period of time, or they may not have any credit at all.
But these are averages, and you may find that your credit score, no matter your age, is not where you’d like it to be. Below-average scores can hamper your ability to open new lines of credit or apply for mortgages and car loans.
Here are some ways you can increase your credit score:
Check the Credit Report
Your credit score also takes into consideration your credit report. However, there may be errors under your name, such as incorrect information stating you missed payments. Accessing your report typically costs a small fee, but there is a way to get this information for free.
Currently, there are three major credit report providers: TransUnion, Experian and Equifax. Per the Fair Credit Reporting Act, these agencies are required to give you a free report every year. Take full advantage of this to spot any errors and correct them.
To Order Your FREE Annual Credit Report, call 877.322.8228 or order your free annual credit report online.
Watch Credit Utilization
Credit cards have a specific limit you cannot pass. Hitting that limit or close to it is known as maxing out, and this should be avoided. While having a large amount of credit can be useful, you don’t want to necessarily use it all. Essentially, your score takes into account how much credit you’re using.
Ideally, you want to utilize 30 percent or less of your credit. The best strategy to lower your utilization ratio is to pay off your balance and hide the card so you avoid using it. The faster you can pay down the balance, the better shape you’ll find yourself in.
You can also lower your credit utilization by requesting a credit increase. However, this should not be your first course of action because you have to remain disciplined. Increasing your credit only to go on a shopping spree will not help increase your score.
“You want to utilize 30 percent or less of your credit.”
Every month, you have bills you need to pay and even missing one payment can damage your credit score. Consider setting up automatic bill payments for a certain date every month. This way, you won’t have to scramble to make a payment minutes before it is due.
Likewise, you should attempt to pay more than the minimum balance. Because of interest, you will end up paying more over many years. This information is displayed on your monthly bills.
Calculate how much you’re able to afford in monthly payments. By paying off more than the minimum, you’ll quickly lower the amount you owe.
Your credit score will not improve if you’re constantly using your cards. You have to make a commitment to use less credit, or none at all while you make payments.
Your credit score is important, and there are many ways you can increase it over the course of a few months. With every increase, you are helping yourself financially.