5 Tips to Improve Your Credit Score

Ever wonder what happens when you pay your bills late? At first it can seem like the only consequence is a few extra cents of interest – not a big deal. However, you may be in for a big surprise when you try to get a credit card, buy a home, or lease a vehicle. Any of these activities will require a credit check – the lender will want to see how good you are at managing money before they lend you a whole lot of it. The better your score, the less they will charge you on the loan.

So if it’s so important to have a good credit rating, how can you get there? Just because you’ve got a bad credit score today, that doesn’t mean all hope is lost. In fact, if you follow these tips, you’ll see your credit score improve over time.

  1. Know Your Credit Rating
    Some surprises are good – like a cake on your 50th birthday. However, some surprises are bad, like when you find your dream house but are told that you can’t get a loan because your credit score is too low. Order a credit report well in advance of looking for your home so you can check for any errors (banks make mistakes, too) and improve any areas where necessary.
  2. Pay Off Debt, and Use Less of It
    If you’re planning on purchasing a home in the near future, it’s a good idea to pay down your current credit card bills. Lenders get jittery when they see that you already owe thousands to someone else, even before they give you a giant loan. So even though you’ve got a $10,000 limit on your Visa, that doesn’t mean it’s okay to have a $9,500 balance.

    It also helps to stop charging everything to your credit cards. Credit reporting bureaus check every month to see how large your balance is. If you manage to reduce the balance on your card on any given day in a month, it will help improve your credit score.

  3. Pay Your Bills On Time
    Paying your bills on time is incredibly important. Skipping even one bill can wreak havoc on your credit score – do everything in your power to pay on time. Don’t fret if you missed a few payments back in University – recent history counts for a lot more. So if you plan on buying a house in the next year, make sure you pay your bills on time each month.
  4. Have the Right Amount of Credit
    Having a reasonable amount of credit (and using it responsibly) helps build your score – it shows lenders that you can be trusted. However, having too much credit, like 10 cards and a few lines of credit, will have the reverse effect. Have a reasonable mix of installment loans and credit cards to help bolster your score, but don’t sign up for a new credit card every month just to get a t-shirt – that t-shirt could end up costing you thousands.
  5. Don’t Go Bankrupt
    We know, this one seems like a no-brainer. It’s still worth noting though, that if you’re in a world of financial trouble, it still rarely makes sense to declare bankruptcy. Some lenders will tell you that they’ll lend you cash, even if you’ve gone bankrupt. It’s true, they will – but the interest they charge is beyond belief. To be sure, speak with a credit counselor before declaring bankruptcy.