How to Improve Your Credit Score
You’ve probably heard many times by now how to improve your credit score: pay your bills on time each month and don’t accumulate too much debt. In a nutshell, that is all you have to do. Eventually, as your late payments, charge-offs and other sins of the past fade in to memory, your credit score improves.
There are simple things you can do to improve your credit score:
(1) Pay bills on time: Paying your bills on time for just six months increases your score, even if you currently have a bad credit rating. Although a history of late payments negatively impacts your credit rating and will result in paying more to make purchases over time, late payments that occurred five years ago carry much less weight than missing a payment two months ago. Lenders start to forgive your past mistakes after you have demonstrated about a three year history of paying your bills on time. The sooner you start showing creditors that you are a good risk, the sooner you will establish an excellent credit rating and the higher will be your credit score.
One of the biggest mistakes consumers make is not mailing their payments so that they arrive before the due date. A good rule of thumb is to send in monthly payments at least ten days before the due date so that they can be received and noted on your account. Adopting the attitude “they’ll get their money when I’m good and ready to send it in” is only going to hurt you in the long run, particularly if you plan to apply for an auto or home loan in the next few years. Those late payments will cost you thousands in extra finance charges when you buy a car or home because you will be charged a much higher interest rate.
(2) Don’t have too many credit cards: Having too many credit cards can negatively impact your credit score even if they all have zero balances. How many is too many? There isn’t a specific number of cards that constitutes too many. The average American has seven open credit card accounts, so anything more than seven is above average and will probably pull down your credit score.
On the other hand, officially closing credit card accounts can also lower your credit score since your upsetting the balance of your debt-to-
credit-limit ratio. With less available credit, the proportion of debt you owe to available credit is higher, which is negative as far as your credit score is concerned.
If you do have many credit cards, write to the creditor and ask that some of these accounts be officially closed and that they report them as “closed by accountholder” to the credit bureaus. It is particularly important to do this well in advance of applying for a major loan, such as a mortgage loan, because lenders will look at your total available credit when deciding what loan rate you qualify for. Those old open accounts are going to cost you interest points (which means thousands more in finance charges) if they are still open and available for use.
(3) Don’t overcharge on your credit cards: If your credit card balances total more than 25% of your available credit, your credit score suffers. Don’t pay just the minimum monthly amount required; pay as much as you can every month. In fact, try to make a habit of using credit cards as only a convenience tool, meaning use them to make charges, but pay the balance in full each month. Paying down your credit card debt will raise your credit score. Also, try to rotate the use of your credit cards so that every few months, your credit card issuer reports that you have a zero balance on your credit card.
Editor’s Note:
We at Jewelry Outlet always want to remind our customers why it is important for them to obtain and responsibly use credit. One helpful way to improve one’s credit is by adding a trade line and then only using a small portion of the trade line. This is an example of utilization, which is 30% of the credit score calculation. Thus with a top score of 850, the utilization category is 255 points of the total credit score (850 x .30).
If someone had one department store trade line of $500, but had maxed out the trade line by charging $500 of goods and services, then this person would lose almost all of the 255 points (out of 850), having a very high utilization of 100%. Thus assuming all other things on the person’s credit report were good, the highest credit score this person could achieve might only be 595 (850 – 255), as this person might lose all points for having a high utilization.
But if this person obtained another trade line (maybe a jewelry store account) for $5,000, now the person’s utilization would be only 9% ($500/$5,500). Thus this person’s credit score would increase, maybe by as many as 200+ points, possibly bringing the score up to over 800.
The person’s interest rate on an auto loan with a 595 score might be as high as 20%, whereas the interest rate with an 800 credit score might only be 2% to 5%. If someone purchased a $20,000 car, the lower interest rate would save $250 per month, for having good credit and low utilization.
This is the power of low utilization. And this why it is important to obtain a jewelry store trade line with a high limit.
Jewelry Outlet is the number one online jewelry retailer to help you enhance, establish and/or rebuild your credit. We offer easy credit terms for people with bad credit, new credit and no credit. Click here to Apply for Credit
Posted by Christian C Culpepper