How can a person improve their credit score? This is a common question many people ask, especially before it comes time to apply for a loan for a car, or house, or to apply for a credit card. There are many different things that go into calculating a person’s credit score. Knowing several of the factors that really matter in a credit score is a key to improving a credit score. Here are some of those important factors and how to improve them.
Get a copy of credit report
Before a person can do anything to improve their credit score they need to get a copy of their credit report. A person can obtain a free copy of their credit report by going to www.annualcreditreport.com. This service is free, and a person can obtain three copies of their credit report (one from each national credit reporting company) every year. After a person obtains a copy of their credit report they can check for errors and make sure that all the information contained in their credit report is correct. This is a very important first step to improving a credit score.
Understand how a credit score is determined
This is perhaps the biggest mystery of all. It is important to understand how a credit score is actually determined so that a person can take the steps to improve it. One of the ways a person’s credit score is determined is the answer to a few questions. The first question is: how long is their credit history? The longer the credit history, the more positive it is on a person’s credit report. But having a short credit history isn’t always negative. It can be positive if the credit report shows payments made on time and low balances on credit cards.
Another question is: do they pay their bills on time? If a person pays their bills late or has an account that was referred to a collection agency, this will show up on their credit report and is a negative factor to their credit score.
A third question that can determine a credit score is: how many and what types of credit does a person have? If a person has a mix of loans and credit cards, this can be something that affects their credit score positively. But if a person has too many credit cards or loans this could also affect their score negatively.
Pay bills on time
Paying bills on time is one of the most important things a person can do to begin to improve their credit score. A person can stay organized in their bill paying by starting a calendar that lists all of the due dates for the bills they have to pay. Or, if possible, a person can set aside a day or two each month and pay all of the bills. It never hurts to pay a bill early if a person has the money for it. Another convenience that many banks or credit unions offer is automatic bill pay. This is even easier; a person just needs to make sure that they have enough money in their account to cover their bills each month.
Deal with debt
Dealing with debt is a stressful issue. Whether a person has very little or a lot, any amount of debt needs to be taken care of to improve a credit score. To begin to deal with debt, a person needs to sit down and make a realistic budget for themselves and their family. A person should begin by listing all of the sources of income and how much money they receive from each source. Next, a person needs to write down all of their expenses, no matter how little they may seem. It is important to see where the money is spent. There will be expenses that will be the same each month, such as mortgage or rent payments and car payments, and there will be expenses that will change each month such as clothing and entertainment. Write them all down. Next, a person needs to see what can be cut out of the list of expenses. The goal is to have enough money for the essentials such as food, clothing, and housing, with enough money to begin paying off debt. This may mean that adjustments need to be made on things on the “expenses” list to have money to help pay down or pay off something such as credit card bills.
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