How to increase your credit score
Unless you are exceedingly wealthy you have to make monthly payments on your debts, which can include mortgage payments, loan payments and credit card payments. The manner in which you take responsibility for making sure your payments are paid on time.
There are three main credit reporting agencies and lenders use one of them, but not all three. Therefore you can have a credit score at all three and it could be different with each one.
Your credit score is made up of several components:
— your payment history = 35%
— the total amount of your debt = 30%
— the length of time you have had credit = 15%
— new debts you have accrued = 10%
— the main type of debt you use = 15%
When any of these percentages are below level-1, then your credit score suffers. In today’s economy with many people being laid off from their jobs, the main two components come into play with a lot of people not being able to make regular payments. When your credit score is low, lenders see you as a poor risk to repay and either refuse to approve your credit application or charge you high interest on the repayment. The following steps will help you raise your credit score and improve your borrowing power.
Pay down your debt.
Make the minimum amount on all your monthly payments. Prepare a budget in which you list all your sources of income and the amount of expenses that you have. The expenses must include the amount of money you spend on groceries, transportation and leisure.
Take a look at expenses that you can eliminate, such as canceling magazine subscriptions or cutting down on the number of times you dine at a restaurant.
By cutting out the unnecessary expenses, you will find that you have a little money extra that you can pay on one of your debts. Choose the one that has the lowest balance and start making higher than the minimum payment on this bill. This will reduce the interest and soon you will see that the balance is coming down and that there is light at the end of the tunnel. As you pay off this debt, you have more money to pay on the next highest balance. This will help raise your credit score because there is a larger gap between the amount of money you owe and your monthly income.
Try not to use credit cards
Try to pay cash instead of using a credit card. When you make a conscientious effort not to rely on credit cards, this makes a difference in your credit score in the way you are using your debt. Also it will make you stop and think about whether what you plan to purchase is something that you want to have or if it is something that you need to have.
Keep a check on your credit limits
In order to have a good credit score, you should have about 30% or more of the available balance on your credit cards available for use in emergencies. Quite often when your balance reaches the limit, credit card companies raise it without your permission. Instead of looking at this raise as extra money you can use, try to keep a gap between what you owe and what you can still use so that your credit score will increase.
Use older credit cards
The length of your credit history is an important part of calculating your credit score. If you have a credit card that has been paid off, the company may stop reporting on it to the credit reporting agency. You can revive your credit by using the card for even a small purchase and then paying it off in full at the end of the month. It may sound unbelievable, but it will work towards increasing your credit score.
It is important for you to keep a close eye on your credit score. You are entitled to receive one free credit report per year. Check it over carefully to make sure that there are no mistakes. If there are make sure you contact the reporting agency in writing to dispute these items.
Once you know what your credit score is, you have a starting point for increasing it. However the score will not increase overnight. It usually takes about six months to notice any raise in the score.