If what you hated about school was being graded at every turn for how well you did or didn’t do, the prospect of receiving your free credit reports (and credit score for between 7 and 15 dollars) must feel like class quiz all over again. And like with school grades, if you have unsatisfactory results, you’ll be thinking long and hard about how to improve credit scores you get. Let’s go for the basics – a credit score is a grading system; it’s a number that anyone who deals with you financially can use to see how dependable you are with money. No matter what you apply for – a mortgage, a credit card, a car loan – everyone uses your credit score to see how reliable a bet you make. Employers trying to hire you will try to look at your credit report and credit score to use as an indicator of your character. You may get a loan even with an unsatisfactory credit score; it’ll just mean that you pay a much higher interest rate on your loan.
The most accepted way of calculating your credit score from all the details that appear your credit report is to use the FICO algorithm. With this kind of credit scoring, they rate you from a bottom score of 300, to top score of 850.
Tracking your credit score isn’t as easy as it should be. While the law says that you can always get your credit report for free once a year from each one of the three main credit bureaus, getting a credit score calculated out of them costs a few dollars ($15 for the FICO scores at Equifax and Trans Union, and about $8 for the one Experian calculates). Now when you get your credit report, the first thing to do is to pore over every detail to make sure that there’s nothing amiss. In a day and age when criminally negligent debt collection agencies can very easily go and place false infoormation on your credit report, you need to constantly make sure that your credit report is all clear. This is the first and the most important thing you can do to improve credit score numbers that the bureaus arrive at.
Now making the grade with a great credit score isn’t as much about how much money you have as it is about how you take care of your finances, however little or much you make. You may not be able to control how much money you make, but you can certainly control how you spend it. To begin with, you need to make sure that your bills are paid on time all the time. This is about the most important thing you do that can affect your FICO score – it affects more than one third of it. You get points each time you pay in time. Try the credit score simulator on MyFICO.com. Missing even one bill one time can slash your credit score by 100 points. The unfortunate thing about trying to improve credit score numbers is that you need to have a good deal of credit history to make a really high number. They need to see a 5 year history to be able to judge how reliable you are. If you can’t remember to pay all your bills at the right time, you can use an online budgeting tool like Mint or Quicken to set it up for you, or you can sign up for e-mail and text message reminders with all the services you pay for.
You also need to make sure that the credit you have available to you isn’t all used up. For instance, if you have a $10,000 spending limit on your credit card, and your outstanding is constantly hovering around $8000, that’s kind of a bad sign. The way you utilize the credit available to you is a big sign to them of how stable your finances are. If you keep it reasonable, never going beyond 9% of what your credit limit is (but not keeping yourself from using your credit at all), that can help you improve credit score ratings by 50 points. If you happen to have credit cards that are unreasonably expensive to own, if you wish to get rid of them, you really shouldn’t. It could hurt your credit score. With one less line of credit open to you, you’ll suddenly have your credit utilization ratio jump up frome it used to be.
Amid all the advice you might hear about how best to improve credit score ratings, these two need pride of place. Take these into account, and you should be set.