Tips on Increasing Your Credit Score

Generally, most people do not worry about their credit score until it comes time to apply for a home or automobile loan, then there are many things that may come into question. Before a person can even begin to understand how to increase their credit score, there are some basic things the individual needs to know. A credit score is a number which ranges from 350 to 850, and the figure is calculated using certain key mathematical pieces of information contained on a credit report.

The number of a person’s credit score will show the lender how good of a risk a person is when it comes time to pay back a loan. The higher a credit score is the better the chances are that a person is a good candidate to repay and the individual will get a better interest rate from the lender. A bad credit score not only not only costs a person thousands of dollars in high interest rates, but it may also mean the individual may not even qualify to receive a loan.

There are certain tips a person can do now to increase their credit score, and the following article is designed to inform people about what to do. In order to get credit and have a good interest rate a person needs to have a high credit score, everything goes hand in hand and one cannot happen without the other. The following tips can be used to improve your credit score:

• Pay bills on time: paying bills on time gives the lender a good idea of how timely a person has paid their bills in the past. Approximately 35% of your credit score is based upon credit history, and delinquent payments and collections actions severely damage a credit rating.
• Do not pay off closed accounts: sometimes closing an old account will actually reduce a person’s available total credit, which changes the amount of the income to debt ratio, which can in turn lower a credit score.
• Get a small loan: in order to qualify for a larger loan at some point in the future, a person should establish a firm credit history. If you are an individual that has little to no credit history, it may be a good idea to get a credit card with a small limit or borrow small amounts of money to establish credit. If you do not have debt you cannot possibly show a potential lender you have a good repayment history, so get credit in small amounts and make timely payments.
• Keep credit card balances low: a high level of outstanding debt can reduce a person’s credit score. If you max out your credit cards, it can result in a credit score plummeting by as much as 70 points. Do not close an account with a high interest rate, instead transfer the balance to a card with a lower interest rate and make payments in a timely manner. Shutting down an older card detracts from your credit record history and makes you seem less credit worthy, meaning you may not be considered for loans at some point in the future.

Following the above mentioned tips allows a person to be proactive about their credit score and shows simple things anyone can do to improve the rating. Always be aware of what is contained on your credit record and do not apply for too many loans at one time because it can actually result in a hit on your credit score. Although it may not seem like it now, paying bills on time and incorporating a few simple tips can help you improve your credit score and someday make you eligible for a loan to purchase the things you have always wanted.