One of the best things that you can do to improve your financial health is to increase your credit score. Your score is essentially your entire financial history represented by a single three-digit number. Maintaining a high score will ensure that you are able to rent an apartment, qualify for a low-interest loan or even get a new job.
If you have a low score, it may seem like a daunting task to improve your credit. However, it is possible to boost your score over time by following some specific strategies.
The first thing you need to do is check each of your credit reports, which are documents that contain a detailed report of your credit history. Your name, open credit accounts and inquiries are examples of some of the items that are on a typical credit report. This information is used by lenders to determine your creditworthiness. Therefore, it is important to check your credit report on a regular basis. According to federal law, you can request a free copy of your credit report from each of the three major credit reporting agencies every 12 months.
The Fair Credit Reporting Act states that each item on your credit report must be accurate and unbiased. Therefore, it is in your best interest to thoroughly review your reports for any discrepancies. If you find any errors, contact the applicable credit reporting agency immediately to remove the inaccurate information. Removing negative items from your credit report is an effective way to improve your credit score.
A large percentage of your credit score depends on your credit utilization, which is your total outstanding credit card balances compared to your total credit card limits. To improve your credit, you need to decrease your credit utilization. Paying off your debt, especially on accounts with a high credit utilization rate, can have a positive effect on your score.
One of the biggest things that you can do to adversely affect your credit is to pay your bills late. Each late payment results in a negative mark on your credit report. You can avoid this harmful behavior by setting up automatic payments through your bank or credit union.
While you are employing strategies to improve your financial health, you should not close or open any accounts. According to myfico.com, new credit determines 10 percent of your FICO score, while the length of your credit history determines 15 percent of your score. For example, closing an old credit card account or taking out a new loan can negatively impact your score.
Although improving your credit does take some patience, you will see a significant improvement in your financial health in the long run by diligently paying attention to your accounts.