Your credit score is an important indicator of your individual financial health. It can be used to determine everything from an auto loan rate to a home equity line of credit. Since a good score will increase your options and may even save you money, you should invest some time today in learning how to raise your credit score.
What is a Credit Score?
According to Equifax, “A credit score is a rating used by a lender to help determine whether or not you qualify for a particular credit card, loan, or service. The credit reporting companies apply an in-depth mathematical model (called an "algorithm") to the information in your credit file to yield your credit score. Most credit scores estimate the risk a company incurs by lending you money or providing you with a service -- specifically, the likelihood that you'll fail to make payments in the next two to three years. The higher the score, the less risk you represent to the lender. Put simply, the higher the score, the better.”
How to Raise your Credit Score the Right Way
1) Pay Bills on Time
One of the biggest contributing factors in your credit score is still whether or not you pay your bills on time. Payment history accounts for approximately 35 percent of your overall score. If you meet payment deadlines consistently over time, your credit score will increase.
Even if you are juggling a lot of bills, the last thing you want to do is miss due dates. Negative items will remain on your credit score for seven years.
2 Tips to Make Payments on Time
- Set up payment reminders
- Enroll in automatic payments
2) Keep Account Balances Low
To raise your credit score, you must also work to reduce the amount of debt that you are carrying on your credit accounts. Even if you make card payments every month, you could face a lower credit score because you are holding high balances.
2 Strategies to Maintain Low Balances
- Pay more than the minimum payment due
- Consolidate your credit use into one or two cards
While it may seem like a good idea to use all the credit you have available, high debt payments will ultimately hurt your credit score.
3) Check your Credit Reports Regularly
Finally, you will need to get into the practice of regularly requesting and viewing your credit report. You can then check this data for errors that may negatively influence your credit score. You should check for items like late payment errors, which can be disputed with your credit bureau.
Although you might be tempted to clean up your credit history, you should never try to remove negative items, like old debt. Instead, if you pay off the debt, your positive repayment record will help improve your credit score.
It’s an important part of personal financial planning to know how to raise your credit score, because good credit has many tangible benefits, like lower interest rates and increased purchasing power, which can help you build wealth over time.