Improve Your Credit Score with These 6 Tips

When planning a big purchase, do you take steps to ensure your credit score is at its best? Anytime you plan on a big purchase, you should be taking some sort of action to ensure your credit score is the highest it can be at application time. Here are six items you need to pay attention to in order to keep or raise your score.

1. Check Your Credit Report.

First and foremost, you need to carefully scan your credit report once per year to ensure all information is correct. If there are items on your credit report that you know are not yours, such as accounts or addresses, you may be a victim of identity theft. If this happens to you, take prompt action by putting a credit alert with all three bureaus and reporting it to the authorities. New information on your credit report can negatively affect your score, so be sure to pay close attention to any changes.

2. Pay Your Bills on Time.

Paying any bill late will lower your credit score. Late payments stay on your credit report for seven years. Only time will heal this credit wound. A late payment will make you lose points in two ways. First, you will lose points depending if your payment is 30/60 days late or over 90 days late. Then, you will lose points depending on how recent your last late payment occurred.

Also, If you have an over due payment with any company, to include utility and subscription companies, your account can be turned over to a collection agency. Collections are reported to the credit bureaus and stay on your credit report for seven years. If you are having trouble paying bills, work out a payment plan with the companies directly.

3. Control Your Balances.

Credit account balances affect your credit score in a few different ways. First, if you have more than one account with a balance of more than 75% the credit limit, you will lose points off your score. To max out your points, keep all account balances below 75%.

Also, your overall balance to credit limit ratio is factored into your credit score. This is called total credit utilization. You will start to lose points on your score if you go above 40%. To max out your points, go for less than 10% utilization.

Finally, you want to have accounts with positive balances. You do not have to have a high balance. You can put a small amount on your credit cards once per year if you want, but show that at least 2 of your accounts had a positive balance in the past 12 months.

4. Limit Credit Inquiries.

Credit inquiries affect your credit report negatively because, to creditors, it shows that there is a possibility that you will accumulate more debt in the near future. Inquiries stay on your credit report for 12 months. If you want to max out your points in this area, do not let any companies do a credit check for the 12 month period before you plan to apply for credit.

5. Be Careful When Opening New Accounts.

Opening new accounts are seen as an opportunity to accumulate more debt. This will have a negative impact on your score only if you open too many of them at one time. Fortunately, after six months, the negative impact of new accounts will drop off your credit report. If you want to max out your score, do not open more than one account in a six month period.

6. Let Your Revolving Accounts Age.

A revolving account, such as a credit card, is an account that you do not have to pay the balance down to zero in order to use the credit for another purchase. Do not close revolving accounts. If you do, you lose your chance at building a higher credit score. It takes 20 years to max out points in this category. If you feel the need to get rid of a card to avoid recharging, either cut the card or put it in a bowl of water and freeze it.

Once per year, give yourself an honest assessment of how you are doing in each of the six areas of your credit report. Even if you are not planning on a big purchase, you still need to pay attention to the factors affecting your rating. It takes years to build a good credit score and the best time to start is now.

Source: InCharge, Institute of America, Inc.