Tips for Improving Your Credit Score
While Benzinga mostly covers actionable trading ideas and news stories, we've decided to delve a bit deeper into personal finance.
The team at Benzinga would like to assist readers with not just their investing endeavors, but their financial lives as a whole. And today, we continue this effort with some tips for improving your credit score.
Your credit score is one of the most important aspects of your financial life. A score of 700 or above generally qualifies you for favorable interest rates while anything significantly below that raises the rate, if you get a loan at all. With this in mind, you'll want to get as close to the highest score (850) as possible to secure a loan at an affordable rate.
How can you improve your credit score?
Monitor Your Credit Report
A Federal Trade Commission (FTC) study found one in four consumers identified errors on their credit reports that might affect their scores. But, if you regularly monitor your credit, you can catch this potential problem early on. Visit annualcreditreport.com once a year to obtain a free report from each major credit bureau and ensure they are accurate.
If you find a discrepancy, the FTC recommends informing the credit reporting company in writing. It will have 30 days to investigate your claim. Also, the FTC suggests doing the same with the creditor.
If the dispute remains unresolved, the FTC notes you may request that a statement of the dispute be attached to your file and in future reports.
Pay Bills on Time
According to Fair Isaac Corporation, creator of the commonly-used “FICO” score, payment history is the top determinant of your credit score at 35 percent.
Be sure to pay all bills on time. Set up automatic payments or payment reminders through your bank or creditors if you have trouble remembering when to pay.
If you've already missed payments, FICO recommends getting and staying current, since recent good payment patterns impact your score positively.
Keep Debt Low
FICO suggests keeping revolving debt low, as high outstanding debt can harm your credit. Note that outstanding debt accounts for 30 percent of your score.
Don't Apply for Every Card on Earth
Despite what that kid at the cash register told you, opening a new account to have a “better credit mix” probably won't help. In fact, opening too many accounts may be taken as a sign you're experiencing financial problems, which could put a dent in the 10 percent “new accounts” portion of your score.
Related: Cash vs. Credit: The Showdown
The Bottom Line
Despite the complex nature of your credit score, you can improve it with sound financial management.
Be sure to monitor your credit reports and dispute any discrepancies. Pay bills on time and keep your debt low.
Finally, resist the urge to sign up for every credit card you see – even if the cashier dangles a 20 percent discount on today's purchase.
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