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Each time you whip out your credit card, your purchase and how and when you pay it off contribute to your credit score.
That score can determine – or wreck – your ability to buy big-ticket items such as homes. If your score’s low, here are ways to give it a boost.
The most commonly used credit score, vital to your financial health, is from Fair Isaac Corp. (FICO). Scores max out at 850. Congratulations if you’re at that level; most people’s score fall short of those heights.
Each lender interprets your score differently. Consensus calls any score above 750 excellent, around 650 fair and less than 600 poor.
The closer you are to 750 or above, the more likely a lender will approve you and charge you lower interest rates, possibly as much as a percentage point or more lower for every 100 points on your FICO score.
Improving your score
First and most important, pay all your bills on time. Late and skipped payments can really hurt your standing.
Next, keep balances on your credit cards as low as possible. Maintaining balances that are lower than your credit limit can also raise your score.
Paying off your debt is wiser than moving debt from card to card. Pay off the credit cards with the highest interest rates first.
A wallet full of new (that is, with no balance yet) plastic may seem like a handy shopping tool. But every time you apply for and open a new credit account, your score goes down; be prudent with those unsolicited applications littering your mailbox.
Seeing your report
Your FICO score summarizes your credit risk and is based on your credit report. Inspect your report at least annually.
Each year you can receive a free copy of your credit report from www.annualcreditreport.com . Reports are provided from the three major credit-reporting agencies (Equifax, Experian and TransUnion).
The ideal credit holder, in the eyes of the agencies, holds a job for some time, owns a home or rents an apartment for several years, uses just a few credit cards and pays the balances on time. The bureaus also like cardholders who carry some balances – usually 30% or less of the credit limit – because card issuers make money from interest on those balances.
Determine if your reports contain inaccuracies
Contact the reporting agencies with the correct information – incorrect information can lead to a denial of credit or your unfairly paying a higher interest rate.
Your dispute might also now have more teeth: The big three agencies recently agreed to change how they handle errors and list unpaid medical bills. Consumer advocates touted the development as the broadest credit-industry overhaul in years.
A low credit score can cost you significant time and money. Do all you can for a higher score and a winning financial life.