Your credit score is a 3-digit number between 300 and 850, generated by a mathematical algorithm (a mostly secret formula) based on information in your credit report, as compared to information on tens of millions of other people. The resulting number is said to be a highly accurate prediction of how likely you are to pay your bills.
If it sounds boring and unimportant, you couldn’t be more wrong. Credit scores are used extensively these days. If you rent an apartment, get braces, buy cell phone service, apply for a job or call to get utilities connected, there’s a good chance your report and score will be pulled.
If you have an existing credit card, the issuer is likely to look at your credit score to decide whether to decrease your credit limit or charge you a higher interest rate. The higher the number, the better you look to lenders. People with the highest scores get the lowest interest rates. And, we hear, they’re getting the jobs.
Know your score
We know we can get our credit reports free at AnnualCreditReport.com. Now we can get our credit scores for FREE, too. Check your credit scores anytime, anywhere, and never pay for them at CreditKarma.com. You will need to create a simple, password-protected account. No credit card required.
Here are ways to improve our credit scores:
Pay your bills on time
Making your credit payments on time is one of the biggest contributing factors to your credit scores. Delinquent payments have a major negative impact on your credit score. If you have missed payments, get current and stay current. The longer you pay your bills on time, the better your credit score. Be aware, however, that paying off a collection account or bringing an account current will not remove it from your credit report.
Keep balances low on “revolving credit”
Using more than 30 percent of your available credit on your credit cards brings down your credit score. This applies to individual accounts and when you add up all of your available credit and compare it to how much you are using at any given day during the billing cycle. This is easier said than done, but reducing the amount that you owe is going to be a far more satisfying achievement than improving your credit score. The first thing you need to do is stop using your credit cards.
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Pay off debt rather than moving it around
The most effective way to improve your credit score is by paying down your revolving credit. Getting your balances down to $0 will send your score soaring.
Don’t close unused credit cards
Closing accounts might sound like a great short-term strategy to raise your score, but it’s not. This will close the gap between your outstanding debt (the amount of credit you are using) and the total amount available. Instead, use a clear strategy to close accounts, but only as it will not impact the gap between what you owe and the amount of credit available.
Don’t open new accounts
More credit might seem wise in order to increase your available credit ratio, but it will be seen as a negative to your score. New or “young,” accounts are not useful in credit scoring because they dilute your average account age. Unless it’s a dire emergency, do not open new credit accounts.
Work on longevity
Make sure you maintain your oldest accounts. A great deal of weight is given to longevity, so the oldest account you have is the most valuable.
Stick with it
As with a lot of things in life, time is the best “healer.” Do the right thing by managing your finances responsibly and your credit score will take care of itself.
If you are having trouble making ends meet, contact your creditors, or see a legitimate credit counselor. This won’t rebuild your credit score immediately, but if you can begin to manage your credit and pay on time, your score should increase over time. And seeking assistance from a credit counseling service will not hurt your credit scores. But beware. There are lots of shysters out there masquerading as negotiators, settlers, and credit counselors.
You can find a legitimate, certified credit counselor at NFCC.org. The National Federation for Credit Counselors is the nation’s first and largest nonprofit dedicated to improving people’s financial well being.
Go to NFCC.org to get immediate help online, or call 800 338-2227 right now to be connected with a counselor near you. NFCC offers credit/debt counseling, bankruptcy counseling, housing counseling, reverse mortgage counseling, student loan debt counseling, and debt management plans.
NFCC is legit. In fact, NFCC is the only credit counseling organization I recommend and endorse. They’ve been around for many years and have earned the highest reputation. NFCC is a wonderful organization you can trust that has come to the rescue of thousands of my readers over the years. They’re ready to help you, too!