How to Improve Your Credit Score

Senior couple improve credit score

If you have ever bought a house, received a business loan or even gotten a credit card, you probably know your credit score. If you aren’t familiar with your credit score, it is a number that represents your risk or worthiness to pay off what is lended to you. These scores range from 300 to 850, with 850 being the best.

If you pay all your bills on time and get low interest rates on loans and credit cards, chances are you have a pretty good credit score.

But what if you don’t? Improving your credit score takes time, but you have to start somewhere. If you’re wondering how to improve your credit score, try doing these things:

Pay your bills on time
The best thing you can do to start improving your credit score is to pay your bills on time. Try marking dates that bills are due on your calendar so you won’t forget. You also can enroll in auto-pay programs so that your bill is paid on a regular schedule each pay period.

Create a budget and stick to it
Creating a budget is a great way to limit overspending and manage your money. By planning your expenses, you can make sure there is money for the important bills before spending on unnecessary things. A good place to start with a budget is to make categories for specific bills (like utilities, mortgage payments, credit cards), and other necessities like groceries and gas. Then, assign how much you want to spend each month to that category.

Maintain good debt
You won’t have a credit score at all if you never have debt. And, your score can’t improve without using your credit to your advantage. But having a large amount of debt compared to your income can be a problem too. Another way to improve your credit score is to make paying off bad debt a priority. Place a category in your budget for debt payment so you set aside some money to pay it off each month. You can start by paying off your credit card with the lowest balance or the highest interest rate.

Don’t check the score too often
You may want to monitor your credit score with a service like Credit Karma or Free Credit Report, but be careful of how much you check your credit. Every time you apply for a new credit card or loan is recorded in your credit score. Too much activity can actually lower your score. So, be careful how many store credit cards you apply for to gain a 5 percent discount.

Why You Should Improve Your Credit Score

Your mortgage
One of the biggest factors deciding your mortgage payments is your credit score. Basically, the higher your credit score, the lower your interest rate. The difference between rates can vary by a full point and a half, which adds up over time.1

Your family
Though your credit score will never be transferred to your family or loved ones for any reason, your debt could become a burden for them in the event of your death. Don’t let your debt get in the way of your family’s financial security. Take steps to lower it while you can.

Your business
Credit scores impact potential business loans just like it would your mortgage. Typically, your credit score must meet a certain minimum for you to qualify for the lowest interest small business loans. Especially when first starting a business, your personal credit score is an important factor when banks consider if you will qualify for certain financing options.

Often, improving your overall financial health can help in increasing your credit score. This can then have a positive impact on your life and your family.

 SOURCES:
1
Bankrate (2016, February 15). Web page: How Your Credit Score Affects Your Mortgage Rate. Retrieved November 14, 2017, from http://www.bankrate.com/finance/mortgages/how-credit-scores-impact-your-mortgage-rate-1.aspx.

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