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4 Tips On How To Improve Your Credit Score Rating

By Mark Riddix

While I am not a fan of relying on credit, there may be times that you are forced to use credit such as buying a house. When these occasions arise, it’s important to manage your credit properly so that you can receive the best rates possible. The interest rate that you receive depends upon your credit score. A good credit score can save you thousands of dollars in interest over the life of a loan. Before I get into the 4 best ways to boost your credit score, here are the 5 key factors that make up your credit score: 1) Past credit history, 2) Current amount of debt, 3) Length of credit history, 4) Types of credit available, and 5) Applications for new credit.

    4 Great Ways To Boost Your Credit Score

    1. Pay your bills on time.

    The #1 way to improve your credit score is by paying your bills on time. Your individual loans are broken down into R and I ratings. “R” ratings are for revolving loans like credit cards. Revolving loans can be repaid and redrawn over and over again. “I” ratings are for installment loans like auto loans. Installment loans are to be repaid with a fixed number of equal payments and cannot be redrawn. If you want to attain that elusive R1 or I1 credit rating, always pay your individual bills within the 30 day time period. If your credit report has R1′s for all of your individual accounts, then it is highly likely that your credit score is 700 or above. As your rating drops so does your credit score. R2 means you repay in 2 months, R3 means you repay in 90 days and so on. The lowest score that you can get is an R9 or I9. An R9 rating means that this debt has been deemed noncollectable and the creditor has written off their chances of collecting any money. Once a debt falls into the R9 territory, it could take years to improve that individual rating.

    2. Check your credit report regularly.

    You should review your credit report at least twice a year to ensure that all of the information reported is accurate. Over 70% of credit reports contain erroneous information. You would be shocked by how many errors could exist on your credit report. If this is the case, make sure you know how to fix errors on your credit report for free. Credit agencies often erroneously list debts that are not yours on your credit report. Lenders often fail to submit updated account information that would benefit you. For example, if you used to pay your Visa bill late, Capital One may still have you listed as a late payer, even though you have paid your bill on time for the past 5 months. Report all errors to the appropriate credit reporting agency. You can find these forms on the credit reporting agency’s website. Contact lenders and ask them to submit updated account information.

    3. Pay down outstanding debt.

    Reducing your current level of indebtedness is one of the fastest ways to give a boost to your credit score. Your best bet is to have no debt and to keep your balance as close to $0 as possible. If you do have debt, aim to keep 70% of your credit line available. Let’s say you have a credit card with a $2,000 limit. The maximum amount of credit that you should use is $600. Lenders look favorably upon individuals that keep their outstanding balances low. Don’t forget to pay off all past due debts such as collection accounts. They won’t give a big boost to your credit score, but every bit counts!

    4. Reduce your applications for new credit.

    Loan shopping can hurt your credit score. If you want to improve your credit rating, you should limit applications for new credit. Credit checks and inquiries will lower your score. Be careful about the companies and agencies that you allow to run your credit. Department stores are known to offer discounts on purchases in exchange for customers applying for new credit. These credit inquiries can decrease your score by as much as 10%! The exception is that inquiries for new credit are treated as a single cluster as long as they take place within a 14 day period.

    Do you have any other questions I haven’t addressed? Do you know of any other strategies that can be used to boost your credit score? If so, please tell us about them!

    (photo credit: TrinityCreditServices)

    Mark Riddix
    Mark Riddix is the founder and president of an independent investment advisory firm that provides personalized investing and asset management consulting. Mark has written financial columns for Baltimore and Washington, D.C. area newspapers and is the author of the book, Your Financial Playbook.

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    • gina

      You also can damage your credit score by closing down one of your credit cards–especially if it is a card that you have had for a lengthy period of time.

      • Winston C

        I didn’t know about that. It sounds a bit crazy.

    • http://www.insweb.com/home-insurance/home-insurance.html Robert

      These are great ways to keep credit scores high, but I think paying down debt is the best way to raise a low credit score. Unfortunately, the only thing that will heal it completely is time. And I’m talking 5-7 years.

    • Chris

      The issue now is with the new credit laws in effect, particularly ones where you may be charged for lack of usage. There are several cards I have had for a long time, but have not used them since I have other cards with better rewards on them. It then becomes a catch-22; if i cancel the card, i lower my credit score since these cards have been with me for a long time. But if i keep the card and don’t use them, then I get charged anyways.

      I might just have to bite the bullet and cancel, going with the lower credit score instead.

      • http://madsaver.com Mac

        Exactly. I don’t know what I’ll do if my unused credit cards start charging me annual fees soon. Some I’ve had for a very long time, but the interest rates have gone far northward and the rewards have all but disappeared. No point in using them, but I fear the hit to my credit score if I cancel.

    • http://www.yourfinances101.com/blog David/Yourfinances101

      Also,

      If your score’s already at a good level, and you want to keep it there, consider keeping your lines of credit open.

      Closing lines of credit usally decreases your score, even though that doesn’t really make sense.

    • http://madsaver.com Mac

      Another thought…do creditors really like that customers keep their balances low? That equals less interest for the creditor, but then again, a higher chance that the customer will default as well. Guess there’s a fine line there.

      • Mark Riddix

        The creditor may not like it but other lenders like that you have a low balance. A creditor may try to reduce your line of credit for the balance being too low but I think the advantange of limited debt makes it worthwhile.

    • http://www.freecreditscore.com/ Free Credit Check

      Agree with your every point you shared here. I think following things above you can improve your credit score and you must do it if you want your score high.

    • Pingback: What Is a Good Credit Score – Understanding Credit Ratings & Ranges « Creative Savings

    • http://www.bankruptcyattorneybaltimore.com/ bankruptcy attorney Baltimore

      My credit score has been steady for a few years but it would be great if I see an increase. I agree that loan shopping is really not advisable. It has given me more debt and my score went down a lot of times because of my loan shopping habit. Thanks for reminding me through your tips.

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