How to Improve Your Credit Score

Your credit score is only three-digits, but it’s one of the most important numbers of your life. Your credit score is a grade for your credit. It’s a numerical value that helps creditors, lenders, and other businesses make decisions about you. High credit scores are better because they show that you have a history of handling your financial responsibilities. If you have bad credit, here are some things you can do to improve your credit score.

Dispute credit report errors. The information on your credit report directly influences your credit score. Any errors could hurt your credit score, especially negative ones like an inaccurately reported payment status. Order a copy of your credit report and review it to make sure everything in it is correct. If you find errors, dispute them.

Pay off past-due accounts. Accounts that are more than thirty days past due hurt your credit score the most. That’s because payment history makes up 35% of your credit score. If you have delinquencies, including charge-offs and collections, bringing them up to date will give your credit score a boost. Pay off the most recent delinquencies first because they have the biggest effect on your credit score.

Pay your bills on time. The longer you pay your bills on time, the more your credit score will improve. Be aware of your due dates and send your payments in enough time to reach your creditors. Setting up automatic payments will eliminate the need to remember your due dates and ensure your payments arrive on time.

Bring your balances below the credit limit. Your level of debt is another significant part of your credit score – 30% to be exact. The higher your credit card balances are relative to your credit limit, the lower your credit limit will be. Your credit utilization – balances divided by credit limit – should be lower than 30% for the best credit score. If you have high credit card balances, pay them down and keep them down.

Keep certain credit cards open. Many people close credit cards without knowing the effect it will have on their credit scores. The age of your credit history counts for 15% of your credit score. If you close an old credit card, your credit score could drop because your credit score looks shorter. Closing credit cards that still have balances increases your credit utilization and decreases your credit score. Before you close a credit card, be sure it’s not going to hurt your credit score.

Only open the accounts you need. Every time you make a new application for credit, your credit score takes a hit. These credit report inquiries account for 10% of your credit score. Though the inquiries remain on your credit report for two years, only those made within the past year affect your credit score.

Limiting your credit applications will help your credit score in terms of credit inquiries, but also with your level of debt. The more credit you have available, the more tempted you’ll be to use it. Remember, high balances hurt your credit score, so removing the temptation to charge more can keep your credit score in a good range.