What Is a Credit Score?

A credit score is a numeric summary of your credit history, a commonly used method for lenders to predict the likelihood that you will repay any loans they make to you.

Credit scores range from 300 (poor) to 850 (excellent).

Higher scores demonstrate consistently good credit histories, including on-time payments, low credit use, and long credit history.

Lower scores mean that borrowers may be risky investments because of late payments or overextended use of credit.

Don’t open credit cards if you don’t plan on paying them on time.

Generally speaking, if you don’t plan on paying your credit cards on time, you’re setting yourself up for disaster.

 

1. Set Reminders

Keep track of when your payments are due.

It’s so easy to forget to pay your bills on time!

Set reminders on your calendar, phone, table, or computer. Whatever works for you and will help you to remember to make your payments on time.

You can set up automatic payments as well…

Download credit card apps to your phone and pay them consistently, on time or before it’s due.

Consistently paying your bills on time raises your score. It typically takes a few months to improve but it works!

 

2. Pay More Than Once in a Billing Cycle

If you can afford it, pay down your bills every 2 weeks rather instead of once a month.

This will lower your credit utilization and improve your score.

What Is Credit Utilization?

Credit utilization is the ratio of your outstanding credit balances (on both credit cards and lines of credit) compared to your overall credit limit combined across your accounts.

For example, if you currently have a balance of $500 against your $1,000 credit limit, your credit utilization is 50%. Having a high credit utilization can hurt your credit score, so best practice is to keep your credit utilization below 30%.

 

3. Review Your Credit Report

You are entitled to one free credit report a year from each of the 3 reporting agencies.

Requesting one has no impact on your credit score.

Review each report carefully. Dispute any errors that you find… this is the best method for a “quick credit fix.”

A government study found that 26% of consumers have at least one potentially material error.

Notifying the credit reporting agency of wrong or outdated information will improve your score as soon as the false information is removed.

 

4. Contact Your Creditors

Do this ASAP!

If you miss payment deadlines and can’t afford your monthly bills, do this immediately to set up a payment plan.

Quickly addressing your problem can reduce the negative impact of late payments and high outstanding balances.

 

5. Apply for New Credit Cards Sparingly

If you open several new accounts in a short period of time, your score may go down.

Although it increases your total credit limit, do so with caution.

 

6. DON’T CLOSE ACCOUNTS!

 

The age of your credit history matters.

Don’t close unused accounts if you can.

A longer credit score history is better.

If you need to close some accounts, close the newer ones.

 

READ MORE: 5 Secrets of the Wealthy

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