Improving credit scores and understanding credit scores isn't all that difficult. If you're thinking about purchasing a new
home or car, or maybe you want apply for a credit card or even purchase insurance, there are three numbers you need to understand.
These three numbers are your credit score and they will have huge impact on virtually every major financial transaction you experience.
So it's in your best interest to know what your score is, understand how important it is and learn how you can improve it.
How did you get your credit score? Anyone who has ever had a loan or credit has a score that demonstrates how well they have managed their credit in the past. Factors considered include, how much credit you currently have, how much outstanding debt you owe and whether you have made your payments in a timely manner. Lenders believe that the history of how you manage credit is a good indication of how you will manage it in the future. The lender views your credit score as a quick and reliable indicator of how likely you will repay, on time, any credit extended to you.
If you've experienced credit problems previously -- such as past due payments or even accounts having been charged off -- your credit rating has some strikes against it. If this is the case, most banks, credit unions and other lenders may have reservations about loaning you any money. Fortunately, for those with less than perfect credit there are companies specializing in extending credit to consumers who have been turned away by others because of their strict lending guidelines .
Today, 33% of people who attempt to finance an automobile purchase have some history of credit problems on their records. However, just because you may not qualify for the best auto loan rate doesn't mean that there isn't other lenders you can turn to. There are many companies committed to offering a second chance to consumers who have experienced financial problems.
Most lenders will rely on tools like a credit-scoring system. Scores can range from about 350 (not a good credit risk) to over 850 (very good credit risk) and are based on over 30 individual bits of information such as, payment history, total outstanding debt and how long you have had a credit file. There are three major reporting bureaus that track all of this information: TransUnion, Equifax and Experian.
Ever time you apply for a new credit card or fail to make a timely payment, that information is provided to the bureaus and it affects your rating. When it comes to improving credit scores and a plan to eliminate debt, the quicker you begin, the further you'll be in the long term.
Below are some helpful tips for improving credit scores:
- Pay all your bills in a timely manner. If you are behind on payments, get them current and keep them current. Late payments have a very negative impact on your rating. You can usually request that your lender move the date your bills are due to another time of the month if it would assist you with paying on time.
- Your goal should be to pay off credit card debt each month. If you can't do that, at least make the minimum required monthly payments. Paying the required payment each month on time will improve your rating.
- Do not max out your credit limits. By using all or a large part of your available credit is a signal that you have stretched yourself to the limit. Many experts suggest that your balances shouldn't exceed 50 percent of your available credit limit.
- Close accounts you no longer need, except for your oldest accounts. Many lenders will see open, unused accounts as a chance that you might go on a spree and overextend yourself. If you where to close your older accounts it may look like your credit history is shorter than it really is. To help determine which accounts to close, think about closing the accounts that are costing you money with annual fees or high interest rates.
- Have a plan. Experts agree that setting up a household budget and sticking with it may be the best way to get out of debt.
- Pay off credit cards that have the highest interest rates, pay the minimum required payment on your other cards. When you get your highest rate card paid off, continue with the card that has the next highest rate. You will do better to pay your credit card debt down than to transfer it around to other cards that offer lower rates.
- Every month, pay a little extra money on your bills, as though it is part of the required payment. It doesn't matter how small the amount, by paying as little as $10 extra each month you can reduce your repayment time by as much as half.
Order your report from the three reporting agencies (Equifax, Experian and TransUnion) learn where you stand and why. When you request your own report, it is considered a "soft inquiry" and will not count against you.
You must understand your credit rating, even if it's not as high as you'd like it to be, it's much better to understand than it is to be misinformed. And with identity theft becoming an ever increasing concern you must keep and eye on your report. If you never check it, you will have no idea what's on there that shouldn't be.
Your credit is less than perfect, and you may wonder, Will it be worth my time to start working on it now? Yes, it's never too soon to commit yourself to increasing your score. History on your record that occurred within the last couple of years will have more impact than things further in your past. If you have work to do to, you'll be better off the earlier you begin. Use Your Rights! Repair Your Credit!
