One of the most important factors in your ability to get a loan is your credit score. This number, based upon a number of factors that estimate your creditworthiness for lending institutions, helps banks and credit companies determine how much interest you’ll pay if you’re deemed worthy of getting a loan in the first place. Because this score has so much influence on your finances, it pays to make sure that your credit score is in solid shape. Here are some tips that can help you improve your credit score.
Pay On Time
Your overall credit score is based upon five different factors, and it just so happens that the biggest percentage of the score is related to how well you pay your bills on time. A full 35 percent of a potential borrower’s score is tied to payment history. Keep up with paying your bills so that none of them reaches 30 days past due, and this portion of your credit score will stay high. Make a payment that goes into arrears, and see your credit score plummet. It only takes one late payment to really make a difference. Bankruptcy or bad debt will really kill your score for years to come.
Don’t Use All Of Your Available Credit
Not only should you pay your credit accounts on time each month, you should also avoid getting close to your personal limit. For example, if Visa should feel justified in extending $5,000 of credit to two different people, and one has an outstanding balance of $4,500 that they make the minimum payments on while the other charges $1,500 a month and pays it in full, the latter will see a higher credit score for this component. The ratio of debt outstanding to total credit available accounts for 30 percent of the total FICO score. The debt ratio and the payment history combined account for nearly two-thirds of your FICO score, so keeping these two components in line will definitely help you improve your credit score. If you need professional help doing this then you may want to look at some credit repair company reviews to see if hiring someone would be a good solution.
Don’t Close Old Accounts
Closing credit cards down can actually be a negative when it comes to your credit score. It affects two factors. Should you have availability to $20,000 of credit over three cards and owe $3,000 on them, your credit utilization percentage would be 15 percent. Should you close down two of the cards that had $15,000 of available credit, your utilization percentage would grow to 60 percent if you still owe the same $3,000. This is a negative impact on your credit score. Additionally, 15 percent of the total FICO score comes from the age of your accounts. Keeping an older account open can allow you to age your credit history and improve your score over time should you also pay attention to keeping your payments up and your utilization percentage at a reasonable level.
While it might seem that credit scores are confusing, there are definitely some steps that you can take to improve them. The biggest concern that you should have when it comes to credit is paying your bills on time. Also keeping low balances and maintaining some older cards (preferably those without an annual fee) can also help your score improve over time.