There are an uncountable number of reasons why it’s important to know how to improve your credit score.
Banks look for good credit scores first and foremost when deciding whether or not to lend you money — which affects your ability to buy a car, house, or boat, start a business, or even get financing on a new large appliance.
Insurance brokers, landlords…the list of people who will treat you better if you have a good credit score goes on and on.
Here are a few basic ways you can improve this abstract number that has such a concrete effect on your life:
Pay Your Bills
It sounds so simple, but many people fail in the most basic financial obligation: paying their bills on time.
If you aren’t paying your bills on time, you can count on the bank being less willing to give you a mortgage on your home, because if you don’t pay the electric company, why would you pay the mortgage company?
Any recurring monthly bill is going to be examined in this way: cable, phone, credit card, electricity, gas, and so on are all fair game. If you regularly miss or pay late on any of these bills, your credit score will suffer.
Whenever you add a bill to your list of monthly expenses, you should follow these steps:
- Set up automatic payment through your bank account.
- Create automatic reminders to ping you a few days before each bill is due.
- When you get each reminder, deduct the amount of the bill from your checkbook
- Also write the bill due date and amount on your calendar.
Avoid collections at all costs
Collection agencies exist because of people who won’t pay their bills. They don’t go away if your ignore them; they go to collections.
Not only do collections agencies actually increase the amount you owe, but they report failure-to-pay every month to the credit agencies, meaning that every bill you have in collections is constantly wearing down your credit score.
Any financial advisor, parent, or anyone else who knows how to improve your credit score can tell you horror stories about collections agencies’ effect on your credit.
Don’t Rely on Credit
Credit cards not only add a monthly bill to your pile, but they subtract cash from your bank account in the form of interest payments. Even more importantly, every month the credit card companies report how much of your credit is going unused to the credit tracking agencies.
For the best possible effect on your credit score, you want to start each month with no more than one-third of your available credit used.
Stick With Your Credit Cards
If you constantly hop from one card to another, looking for better ‘introductory rates’ and other such offers, your credit score suffers — so it’s best to keep the credit card you got in college and use it for life.
That said, it’s also good for your credit score to have a couple of other cards (often ‘store cards’ like a Macy’s card or a JCPenny’s card) and use them at least once every season. Just make certain you pay them off in full right away or you’ll be looking for another one of those mortgages for bad credit.
Improving your credit score isn’t the arcane formula that many people seem to think it is. You’re doing better than most if you take action, and this is a good place to start.
Just by looking for the answers, you’re well on your way to knowing how to improve your credit score. Just don’t fail to actually follow through with what you find!