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I won’t lie to you, I never really thought about my credit score until the last few years. It seemed like a lost cause due to student loans and medical bills. One day I signed up for Credit Karma and decided to slowly get rid of past due bills. Over the last year or so my credit score has improved by at least 100 points. Seriously!
So why is your credit score so important? Think of it like a business review. When I am looking to go somewhere I have never been and trying to find good experiences (ie. date nights, family outings, best happy hours) I look online and go where they have the best reviews. That’s what lenders do when they look at your credit score to decide if they should give you a loan for a car, house, new credit card, rent an apartment… you name it. They don’t know you so they need to look at your history. It also affects what the interest rate will be once you secure that loan or credit card and obviously the lower the interest the better. Interest rates are also something I didn’t really pay attention to until recently! Learn from my mistakes, people!
Scores can range from 300 to 850 (perfect) but if you have somewhere around 760… that is considered excellent and it is what you should aim for. The following ways can help you improve your score and your finances!
Check Your Credit!
As mentioned, Credit Karma, is free and you can check it as often as you want. I used to think that you could only view your credit report once a year, wrong! You should check it at least once a year.
Why should you check it? Of course you need to know your score to see where you stand but also because many reports contain mistakes. When I first viewed mine, my mom’s name was on mine. I didn’t have any of her accounts on my report but that was still something that needed to be corrected.
Don’t Max That Credit Card!
This is where I was able to improve my score greatly. While I didn’t max out credit cards, I was carrying high balances. If you spend more than 30 percent of your available limit your score drops. If you can’t afford to pay down the bill, then call and ask for an increase in the limit (and don’t use that increase!) that will help. If you pay off a credit card, don’t close that account either. Especially if it’s been open for awhile!
An example? If across multiple credit cards you have $2,000 spent on a $10,000 limit (just an example!).. this looks better than $1,000 spent across multiple cards with a $2,500 limit. I had always assumed that if you had less credit cards to you were in the clear. Not so!
Don’t Close Accounts
This is another area I just assumed I was correct about… when I would pay off a credit card, I would cut it up and close the account. That’s gotta look good, right? Wrong. As mentioned above it can actually help your debt/spending ratio. If you close a long standing account, that also decreases your financial history. You look better to lenders when you have a longstanding history. I recently closed a credit card that I opened when I was 18. That’s almost 12 years of history to show on time payments… now my oldest account is only 7 years. Crap!
Pay Your Bills
That makes sense, right? I have always been someone to pay bills on time but the one time I couldn’t afford a hospital bill? My score dropped a lot. Like 40 points. I got sent to a collections agency and that was put on my credit report. Even once the balance was paid off that stayed on my report for SEVEN years. I didn’t know that if I sent money slowly, even $20 a paycheck that you cannot be sent to collections. Always pay your bills! I read that if you have a 780 credit score and miss one payment for 30 days it drops your score by 160 points!
Apply for Store Credit Card and Get 20% Off? NO!
Don’t fall for that. Too many inquiries into your credit history will ding your score by at least 5 points.
Carrying A Balance
I already talked about the debt/spending ratio and how that can lower your score but carrying a balance also just means you are paying more interest.
To sum all of this up? Avoid credit cards. Have a MAX of two that are for emergencies and always pay off the balance.
Do you have any other ways to improve your credit score? I would love to hear them!