When looking at your credit score, the three digit number that summarizes how well a consumer has handled their debt, we all strive for a higher score because this will usually lead to better loan offers and lower interest rates. This in turn can lead to hundreds or possibly thousands of dollars in savings over the life of the debt. While there are three major bureaus that submit these scores and each uses different formulas to create them, they all simply try to judge the risk of the borrower to repay the loan. Here are a few tips to help you raise your credit score and keep it higher.
Credit score experts tend to key on a few factors when considering credit rating. The first and foremost is the borrowers history of paying bills on time. This should be every consumers first priority. Create a monthly budget, put at least a small amount into savings and pay all your bills on time. By putting even $10-$20 a month into a savings account, you’ll build a small nest egg to fall back on in emergencies.
The next factor when considering credit score is keeping low debt levels. This tends to improve your utilization ratio (or balance to limit ratio), which compares the amount of credit being used to the total credit available. Low debt levels compared to high credit availability lowers your ratio and raises your rating.
The last factor is not unnecessarily opening and closing credit accounts. Credit applications create hard inquiries on your credit report. When a potential lender checks your credit report during the application process it creates a small negative impact which can lower your score. Although an occasional hard inquiry may not affect your score, many of these inquiries over an extended period could prove to be detrimental.
On the other hand, closing current accounts eliminate the credit levels that go with them, thus reducing your overall credit availability. This will increase your utilization ratio and drive down your rating. Therefor, if you already hold several credit cards and are up to date on the payments and have low fees associated with them, you are better off simply holding them in reserve.These will keep your credit level high.
With these tips in mind, every consumer should be able to raise their credit rating and keep their credit score high enough to get better rates from lenders.
