How To Raise Your Credit Score

by Jeff W

How To Raise Your Credit Score

So you want to know how to raise your credit score? In short pay all of your bills and make sure you pay them on time every time. I know this sounds overly simple but it really isn’t. To better understand the best way to raise your credit score, lets understand exactly what your credit score is.

What Is A FICO Score?

Your credit score is based on a system developed by a company known as Fair Isaac Corp, which is where the term FICO score comes from. The system calculates a lot of different factors like how long you’ve had credit established, how often you pay your bills on time, what kind of outstanding balances you have on loans and credit cards, along with a lot of other factors.

Your FICO credit score ranges between 300 and 850, with 300 being the lowest and 850 the highest. The higher your credit score the more likely it is that lenders will give you their preferred rate. Having a higher credit score can save you hundreds of dollars a year in interest on mortgages, car loans or anything else that might base your interest rate or payment structure on a credit score.

Get Credit Established Early

When you have something bad happen like missing a payment your credit score will take a hit, however the longer your credit history the lesser the impact that it will have on your credit score. So for example, if you are a young person who has only had credit for a short time and you already missed a payment or two then it is apparent that you arent responsible with your money and your FICO score is going to reflect that. On the other hand if you have had a spotless record for 18 years and you suddenly miss a payment, your score wont take as great of a hit.

Keep Your Oldest Credit Card Active

Having established credit cards is very important to your credit score. When you have had a banking relationship with a credit card company and they are happy with you it shows that you are responsible with your money and you have made a good effort to make your payments on time.

Keep Your Available Balances Low

If you have many credit cards it is a good idea to keep your available balances as low as you can get away with. Even if you have your balances paid off completely your available balance is considered. Look at it this way… if you have four cards with $10,000 available each then credit companies still see you as having the potential to run up $40,000 in debts after they loan to you. This is a risk for the company to take on and they need to accommodate for this risk by charging you a higher interest rate. By keeping your available balances lower you can help eliminate this risk.

Always Monitor Your Finances

This last point is perhaps the most important (aside from paying off your bills of course). You need to monitor your credit as often as possible. You’ve heard commercials offering credit monitoring service to help protect you and your score. These companies are definitely helpful, but whether you need to pay for a service is up to you depending on how much you are willing to do yourself. By law you must be allowed to check your credit score for free once a year and I highly recommend that you take advantage of this. Check to make sure that you recognize all the accounts opened in your name, and if you don’t you need to contact the issuing credit agency to rectify this.

Bottom line, taking care of your credit score is one of the most important things you can do for your financial future. Just a few points on your score can make the difference between locking in the top rate and paying hundreds or thousands of dollars in interest payments.

How To Raise Your Credit Score