3 Things To Do If You Want To Improve Your Credit Score

Having a good credit score is important. When you have excellent credit, you qualify for great rates and loans to help you afford large purchases such as a house or a vehicle. A low credit score may qualify you for a loan with substandard rates, or it may make you ineligible for the financing you need. Thankfully, it is possible to raise your score over time so you can obtain great loans. If your credit score is lower than you would like it to be, start practicing these three tips to start improving it.

Track Your Credit Score

Once you decide to work on improving your credit score, you need to closely monitor it to watch for improvements. Not only can this practice help you see how close you are to completing your goal, but it is also a good way to make yourself aware of any inaccuracies that could be damaging your score.

Check your free credit score to get started. Once you know what your starting score is, check back every month or two to see if your strategies are working. Many credit card companies include your credit score on your monthly statement, making it easy for you to track.

If your score slowly improves every month, you have nothing to worry about. However, if your score lowers despite the strategies you have put in place to improve it, you may be the victim of credit fraud. Catching fraudulent activity early allows you to dispute it with minimal hassle, so monitoring your credit score plays an important role in helping you improve it.

Pay Down Debt

The more credit card debt you have, the lower your score will be. Therefore, the most effective way to improve your score is to pay down the amount of debt you have. If you have a significant amount of debt, this may seem like a daunting process, but it does not have to be complicated.

One major factor in determining your credit score is your credit utilization rate. This is the amount of debt you have in proportion to your credit limit. Once you pay your debt down, your credit-utilization rate improves, resulting in a better credit score.

If you want to pay down debt quickly, the first step is to make timely payments. You rack up late payment fees with every payment you miss, which adds up quickly and can significantly increase the amount of debt you have. These fees are added to your debt and interest fees, and if you get too far behind on payments, your account may be turned over to debt collectors. Avoid adding additional debt by committing to paying at least the minimum amount due each month.

You should also try to pay more than the minimum amount due whenever possible. Because you pay interest on credit card purchases, you actually only pay approximately half of the minimum payment towards the debt you owe. The rest is applied to interest. Making minimum payments each month will allow you to eventually pay off your card, but it will take a much longer time than if you added more money to the payments. It is a good practice to pay extra on your credit cards each month if you want to pay them down quickly.

Keep Credit Lines Open

While it may seem like a good idea to close credit lines after you pay them off, this practice could actually have a negative impact on your credit score. As you close credit lines, you change your available credit limit, which then makes the debt you still have represent a larger percentage of your credit. This raises your credit utilization rate. Because this rate is such a major factor in how your credit score is determined, a higher rate leads to a lower score.

Avoid this problem by keeping unused credit lines open when possible. If you can avoid incurring additional debt by using these cards that have already been paid off, having these credit lines open with raise your score quickly with minimal hassle. However, it is important to note that this strategy only works with existing cards. If you try to open multiple accounts with the intent of improving your score, your account may be marked with a hard inquiry, which could also damage your score. Stick to paying down the cards you already have and keeping those lines of credit open.

Raising your credit score takes some work, but it does not have to be difficult. When you implement the strategies above and focus on avoiding incurring additional debt, you can slowly but surely improve your credit score so you can qualify for the loans and excellent interest rates you need to make large purchases. Find out what your credit score is today and start using these strategies to raise is.

photo credit: cafecredit Excellent Credit Score via photopin (license)

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