Improving your credit score does require some patience and perseverance — a significant increase can take 12 months or more, according to experts. But, it’s worth the effort: A jump of even 100 points can translate into thousands of dollars in interest saved on a loan or mortgage. If you applied for a 30-year mortgage loan for $200,000, for example, the difference between a FICO score of 650, which is considered good, and one of 750, which is great, could be nearly $34,000 in savings, thanks to the lower interest rate the higher score could get you. FICO scores can range up to 850, though one of 760 or more will often qualify you for the best rates. If your FICO falls short, try these six steps to get a stronger score.
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1. Automate Your Bill Payments
Setting up automatic monthly payments can help ensure you won’t miss or delay a payment, which can cost you — both in additional interest you may owe and in credit score points. Even one 60-90 day late payment can hurt your score, says Jean Chatzky, a financial journalist and author of Pay It Down!. If you know that you are going to be late because of an unusual circumstance, such as an unexpected illness or job loss, call your issuer and let them know in advance. They might even give you a grace period.
2. Keep Your Debt Utilization Ratio Low
Your debt utilization ratio is the amount of debt you have divided by the amount of available credit. So if you have two different credit cards, say, with a $5,000 limit (or $10,000 total) and you owe a combined $4,000 between the two, you are using 40 percent of your available credit. That’s too high, says Bill Hardekopf, the CEO of LowCards.com, a credit card information website. “Your debt utilization ratio should be no higher than 30 percent,” he says. “But lower is even better.” (That applies to individual credit cards as well as your total debt to available credit ratio.)
3. Space Out Your Credit Applications
Applying for several credit cards at the same time results in multiple credit inquiries in a short period and can raise a red flag among credit scoring companies, says Hardekopf. “Don’t apply for ten cards, hoping that you will get one or two,” he warns. “This will signal that you are in some type of financial difficulty.” If you need additional credit, consider calling an existing card issuer first to see if you can increase your credit limit.
Though this tip may sound illogical, it can actually help you improve your score. “When you close a credit card, the credit you have available declines,” Chatzky explains. Need to boost your credit score ASAP? Chatzky says one of the quickest ways to boost your credit score is to request an increase in an existing credit line instead and then not use it.
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5. Keep Old Accounts Active
Length of payment history counts for about 15 percent of your credit score. So, long-term accounts with consistent on-time payment records can help add points to your credit score. And, closing them can have the opposite effect, influencing your length of payment history and total credit limit (which can adversely affect your debt utilization ratio). Keep accounts open and in use: Some issuers will close an account or stop reporting it to the credit bureaus if it remains inactive for too long, warns Jennifer Lee, a spokeswoman for Credit Karma. Hardekopf recommends making a small purchase every month or so and paying it off in its entirety to keep accounts, and credit, intact.
6. Mix It Up
Your credit mix determines 10 percent of your credit score. “Credit scoring companies like to see that you have the ability to pay off a car loan, utilities, student loans, and maybe eventually a mortgage,” notes Chatzky. Or, at least, make consistent monthly payments on each. Doing so shows that you can manage different types of loans and payments responsibly.
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