Your credit score is a big component of your finances. Lenders and credit card companies use your score as a risk assessment to determine whether you can achieve financing or a new line of credit and to determine the interest rate you receive. Though there is no guaranteed quick fix to boosting your score, here are a few simple ways to push your score in the right direction.
Keep Revolving Balances Low
If you don’t pay off your credit card balances each month, it’s best to keep your debt-to-credit ratio at 30 percent or lower. The smaller percentage of credit in use, the better it is for your score. Though making the minimum monthly payment is good for your credit report, you won’t get far with the interest charged each month.
If you are trying to pay down your balances, make it a goal to pay more than the minimum payment.
Don’t Close Old Accounts
Though closing a card with a zero balance stops you from racking up a balance in the future, it also decreases your available credit, upping your debt-to-credit ratio. Keep your accounts open but cut up the card if you feel you won’t be able to refrain from using it.
Keep a Mixture
Those who have good credit often have a healthy mixture of revolving credit (credit cards) and installment loans (auto, personal and home loans). A variety of accounts (in which minimum payments are made on time) can modestly boost your score.
Make Your Payments on Time
It seems like a no-brainer, but your payment history makes up a whopping 35 percent of your FICO score. Not only do late or missed payments drop your score, but credit card companies tack on costly late payments that put your even further behind in paying off your balances.
Check Your Credit Report
Each credit reporting agency – Equifax, Experian, and TransUnion – are required to provide you a free copy of your report annually. Mistakes do happen, so dispute any errors you find. An error as small as a misreported credit limit can make it look as though you have a higher debt-to-credit ratio.
Your credit score is a large factor in your approval for home financing. For more information about home buying and financing, in general, download our free Mortgage 101 Handbook.