Credit Scores are three digit numbers, generally between 300 and 850, provided by Equifax, Trans Union and Experian Credit Bureaus, often called FICo. Used by lenders, utility services and even employers to determine how reliable an individual is with paying their bills. The higher the score, the more likely you are to get a loan, apartment, utilities, better rates and services.
Improving credit scores takes time, but you can increase your score by understanding what lowers and raises your score. All three credit bureaus take into consideration payment history, how many open loans or credit cards you have, how long an account has been open, the types of accounts you have, and how often you apply for credit or credit inquiries are made.
When you are trying to raise your score, knowing what NOT to do is just as important as knowing what you should do.
Lowers Credit Score:
- New credit inquiries (too many in a short period of time)
- New lines of credit or credit cards
- High credit card balances
- Too many credit cards
- Closing long history credit cards
- Paying late or settlement for less than original balance due
- Bankruptcy, charge offs, collections, delinquencies (no quick fix and could remain 7-10 years on your credit report)
Building credit does not happen immediately. It is a long term process that requires dedication. Credit history is built gradually and the your score will increase gradually over time. For example, bringing a delinquent account to a current status can take 30 to 60 days to reflect any change to your credit report. To raise your score, you need to consistently pay your bills on time every month, manage your credit card utilization and have a mix of different credit types-installment, revolving, service credit, credit cards and mortgages, for example.
Can Help Raise Credit Score:
- Paying bills on time
- Paying down loan balances
- Keep credit card balances low
- Paying down balances in full each month
- Credit card utilization at or below 30% of available credit line
- Requesting credit limit increases
- Keeping credit cards open even if not using them
- Becoming an authorized user on responsibly used credit card
- Dispute any inaccuracies on credit report
Credit can be a powerful tool for your financial goals. Understanding how it works, how to build your credit and how to maintain a good credit history can save you lots of money and provide for emergencies before you really need it.