If your FICO score is leaving you frazzled, there are ways to improve your credit score. By understanding how credit bureaus rate your credit, you can identify what is weighing you down. Having a good credit score is even more imperative in times of economic downswings when banks are stingier with offering loans. To check your credit report, Experian.com offers a free report.
Explanation of Credit Score
Your credit score consists of five areas. The first, which accounts for a whopping 35 percent of your credit score, is how often you pay bills on time. The second, which accounts for 30 percent of the score, is your debt-to-credit ratio. You should aim for 20 percent or lower, meaning, if you carry a credit card with $2,000, you should not owe more than $400 on it. Third, your length of credit history is 15 percent of the mix. Requesting new credit can affect 10 percent of your score, and the other 10 percent is determined by what kind of credit you have (e.g., a cable bill or credit card).
Enroll in Automatic Bill Pay
Considering that the timeliness of payments accounts for 35 percent, enrolling in automatic bill pay to ensure your bills are paid on time could really help your credit score. Enrolling is simple: Log on to your phone company or credit card company, and go to the payments section of your account. This area should include an option to set up recurring payments. Have your checking account and routing numbers handy, since both are required to set up automatic bill pay. If the site is difficult to navigate, call the company directly: Most can set up recurring payments for you, but some might charge a fee. CNN.com explains that missing payments can cause the most damage to a credit score. Only payments 30 days late can be reported, and late payments past 90 days can stay on your report for years.
Request More Credit Cards
Be careful with this tip, since it could be a double-edged sword. Requesting more credit might bring down the section worth 10 percent of your credit score but can easily raise your debt-to-credit section worth 20 percent of your score. Once you get these new cards, make only a few purchases monthly to keep them active, but be careful: The higher the balance of debt, the worse your score will be.
Pay Off Debt
This tip might seem obvious, but paying off debt can be done through a number of creative ways. Students in credit card debt with high interest rates might consider taking out student loans with lower interest rates to alleviate some of the burden. Student loans must be repaid eventually, and this tip is subpar to paying credit cards off directly, but deferment and lower interest rates might provide a breather and help with paying other bills on time. The Federal Reserve explains that a healthy mix of installment loans is OK, but too many credit card accounts can damage a credit score. Also consider taking a second job, and put any revenue directly toward the debt.
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