Personal Finance

Tips for improving your credit score

If you are planning to make a major purchase, you will find that your credit score is a very important number indeed. In large part, your credit score will determine the rate of interest you are asked to pay on the loan you receive, or even if you qualify at all.

Most lenders have very strict rules about allocating their best interest rates and loan terms, and those rules are directly related to credit score. Generally speaking, the best interest rates go to those with credit scores of 700 or higher, so even if your own score is only a few points shy of the mark you could miss out on that great rate.

The most important way to keep your credit score as high as possible, of course, is to pay your bills consistently on time. A consistent history of on time payments is essential to a good credit score. It is also important to keep revolving balances on credit cards and lines of credit low, and to take on additional credit only when necessary.

Those are excellent long term strategies, of course, but often those in the market for a home or new car will want to bump their credit score up enough to qualify for the lowest possible loan or mortgage rates. Fortunately there are ways to boost your credit score that are easy to do.

The first step is to pull a copy of your credit report and credit score. If your credit score is already at or above 700, you’re fine. Bumping your credit score from 720 to 740 will do nothing to get you a better rate.

If on the other hand your credit report is a few points shy of the 700 mark, there are a number of things you can do to improve how you look to potential lenders. The first thing to do is look for errors that could be dragging down your score. Look for things like late payments and missed payments. If these items are erroneous, notify the credit reporting agency and ask that they be removed.

Many people think that closing unused accounts will help boost your credit score, but the opposite could actually be true. The fact is, closing unused accounts will not help your credit score, and it could hurt you.

That is because closing accounts you are not using without paying off your existing debt will negatively alter your utilization rate. The utilization rate is the amount of total debt divided by your total available credit.

If you must close accounts for reasons other than improving your credit score, be sure to leave your oldest accounts untouched. That is because the length of your credit history is a factor in your credit score. Closing a longstanding account and opening a new one will make you look like a much newer, and much riskier, borrower.

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