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Improving Your Credit Score

Your credit score is a numeric summary of your credit history, and it can play an important part in your future. A good score can help secure lower interest rates and better lending terms when you need money. A bad one can cost you thousands of dollars in higher interest rates and may even prevent you from getting a job.

As you go through your life, you credit score will fluctuate up and down. How much it fluctuates depends on your use of credit cards and your history of paying back money that you borrowed.

As your credit use changes, so does your credit score. If you find you have a less-than-ideal score, know that you can improve it over time. There are few quick fixes, but you can take steps to steadily improve your score.

 Some Credit Score Basics

Credit scores range from 300 (poor) to 850 (excellent). Higher scores show consistently good credit histories. Lower scores signify that potential borrowers may not be good investments for lenders.

There are no exact cutoffs for good scores or bad scores, but there are guidelines for each. Most lenders view scores above 720 or 740 as ideal, and scores below 600 or 620 as problematic.

The average credit score is somewhere in between, around 680.

Credit scores are derived from credit reports, which are thorough histories of your borrowing and repaying life. The three major credit reporting companies collect information about your loan repayment history and your history of credit card use and payment of monthly bills.

 7 Tips to Improve Your Credit Score

It takes time to fix credit reports and your credit score. They are snapshots of a history, and history cannot be changed instantly. This could mean months or even years of responsible credit use.

But here are seven things you can do now to improve your credit score:
  1. Review your credit report and dispute any errors.  This is the closest you can get to a quick credit fix. Notifying the credit reporting agency of wrong or outdated information can affect your score as soon as the false information is removed.
  2. Set up payment reminders if you miss payment deadlines because you forget to pay or lose track of bills. Write down the deadlines for each bill in a planner or calendar, or set up reminders online. Consistently paying your bills on time can raise your score within a few months.
  3. Contact your creditors immediately to set up a payment plan if you miss payment deadlines and can’t afford your monthly bills. Quickly addressing your problem can ease the negative effects of late payments and high outstanding balances.
  4. Reduce your total debt rather than shifting balances to different accounts. Your credit report and credit score look at the sum of your debt as well as individual accounts.
  5. Keep credit card balances low, even if you pay the balance in full each month. Your credit score only takes your total balance into account. It doesn’t differentiate between a balance carried over from last month and a balance new to this month.
  6. Apply for new credit sparingly. Although it increases your total credit limit, it’ll hurt your score if you open several new accounts in a short time period.
  7. Don’t close unused credit card accounts. The age of your credit history matters, and a longer history is better. If you must close credit accounts, close newer ones.

 If You Don’t Have Credit

If you don’t have any credit history, it’s a good idea to start one. A positive credit history is helpful when you want to purchase a car, rent a home or even apply for jobs.

Your first action should be to check your credit report. Even if you’ve never had a line of credit in your name, you may find you have a short credit report which can contain errors or unpleasant surprises. Correct any wrong information you find.

Then start building a good credit history. Experts suggest two ways to go about this.

First, you can apply for your own line of credit. Credit cards for gas stations or department stores are generally easy to obtain and are good ways to build solid credit. Use them responsibly, being careful not to overcharge. They key: pay your bill, on time, each month.

Second, you can ask to be added to someone else’s account. Make sure the account is up to date and has a good payment history. By adding your name to the account, you may be able to inherit its positive history.

Whether your credit history is damaged or nonexistent, you aren’t in permanent financial trouble. You can take actions starting today to build or rebuild your credit report and improve your score.

Al Krulick

Al is an award-winning journalist with dozens of years of writing experience. He served as a drama critic, high school teacher, arts administrator, theatrical producer and director. He also dabbled in politics, running twice for a seat on the U.S. House of Representatives for Florida. Al is a Certified Debt Specialist with the International Association of Professional Debt Arbitrators and specializes in real estate, credit and bankruptcy advice.

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