Are you trying to improve your credit score? I don’t have much use for credit scores these days. Except for the occasional store card we open to save on a big purchase, I figure my credit score is largely irrelevant.
Having said that, I also do not go out of my way to earn a bad FICO score, since credit scores are still used for things like qualifying for a mortgage and determining insurance rates.
It wasn’t long ago my credit score suffered from too much outstanding debt, a collections item (thanks to an old issue with a cell phone provider), and a number of other factors.
I made it a point to learn what it would take to raise my score, but honestly most of the improvement has been a natural byproduct of our focus on reducing debt and avoiding new credit cards.
A 9-Step Plan To Improve Your Credit Score
1. Stop applying for new accounts. Each time a potential credit supplier inquires your credit file it can be detrimental to your FICO score. Opening new accounts also lowers the average age of your overall credit file, which also counts against you.
2. Continue to pay your bills on time. Roughly one-third of your credit score is derived from payment activity. And it takes seven years for collection items to drop off.
3. Clean up credit report blemishes by paying them off. Even if you have a collections item reported on your credit report, it is better to have a paid for collections item than one that is still outstanding.
By canceling your account you effectively remove that available credit from the equation, causing your credit utilization ratio to go higher and your credit score to go lower.
5. Aim to keep credit balances at less than 30% of credit limit. Maxed out credit cards are a sign of elevated risk and are viewed negatively when calculating credit scores.
6. Maintain different types of credit accounts. While I would not go out and get a mortgage or car loan just to satisfy this requirement, it is generally a good idea to have a mix of credit types to improve your credit score.
7. Check your credit report twice a year. I like to check my credit reports every six months to look for items reported in error. If you find a mistake, follow the credit reporting agency’s requirements for disputing the erroneous item.
8. Consider timing of balance pay offs when applying for mortgage. I do still maintain a credit card, but I pay it off every month. Because balances are reported to the credit reporting agencies monthly and are essentially a snapshot in time, it might look like I carry a high balance.
Before making a large purchase such as a mortgage it is a good idea to avoid spending on credit cards.
9. Consolidate revolving debts with an installment loan. Tread carefully here. The absolute worst thing you can do is consolidate your debts with a loan and then run up each of those accounts again.
Not only will this tactic not improve your credit score, but you will usually end up deeper in debt.