Ways to Improve Your Credit Score

Improving Your Credit Score Can Save You Money

Credit Report
••• SpiffyJ / Getty Images

Your credit score is a very important number that lenders use in order to determine whether or not to extend credit to you, and what the interest rate and terms of the credit or loan are. The lower your score, the less likely you will be approved for loans. If you are approved, you may have to pay a high interest rate. Your credit score is broken down into five categories:

  • Payment History – 35%
  • Total Amounts Owed – 30%
  • Length of Credit History – 15%
  • New Credit – 10%
  • Type of Credit in Use – 10%

Make Your Payments on Time

The single most important thing you can do to keep your score high, or improve upon your score is to make your payments on time. Payment history is the largest factor that is used to determine your credit score. Payments that are 30 days or more past due will show up on your and negatively impact your score. These negative marks generally stay on your report for seven years.

Keep Your Total Debt Load Under Control

With the second largest factor of your credit score being the total amount you owe, it is important to keep borrowing under control. If you currently have a significant amount of outstanding debt, your priority should be to stop borrowing and work toward lowering the balance.

This isn’t always easy, but the only way to improve your debt situation is to stop borrowing or using credit cards and continue to make timely payments that reduce your balance.

In addition, you want to consider how much of your available credit is utilized. For example, having many credit cards that are maxed out, or very close to their limits will negatively impact your score. Two credit cards with a $5,000 limit and a $1,000 balance on each will look much better than a single card with a $2,500 limit and a $2,000 balance.

Keep Old Accounts Open

Length of credit history is another important credit score factor, so it can be to your advantage to keep older accounts in good standing open. While you want to keep the total number of accounts manageable, sometimes it can hurt your score more to close an old account than to keep it open, even if that means you have more open accounts.

Be Careful When Opening New Accounts

While new credit is the least important factor in your score, it is still an important issue to consider. When you are shopping for a new loan or credit card, do your shopping in a relatively short amount of time. You don’t want to have your report show that you are constantly looking for credit.

You also don’t want to open credit accounts you don’t intend to use. It may be tempting to get that additional 10% off when you open that new retail store card but the little bit of money you save may be insignificant when multiple new accounts such as these actually lower your credit score.