The latest figures show the average American FICO credit score is 703 out of a possible 850. Credit scores reflect your payment history, credit-to-debt ratio, length of time you’ve had credit, and activity on your credit accounts.
Getting a loan is much easier for those with average to above-average credit scores. Are you saving for a new home? You’ll need a good credit score for a mortgage.
Is your credit score lower than you’d like? Read on for five tips for building your credit score.
1. Know Your Credit Reports
The three big credit companies are TransUnion, Equifax, and Experian. All your credit information goes to these three companies.
Check your credit reports from each company on at least an annual basis. Make sure all the tradelines are correct. Tradelines are the different accounts in your report.
The Fair Credit Reporting Act gives you the right to a free credit report once a year.
Look through your reports. Are there any mistakes on the tradelines? Call the reporting agencies and get those fixed.
2. Fix Late Payments
You may think a late payment now and then won’t hurt anything but late payments lower your credit score. Make payments on time.
If you have an occasional late payment, contact the creditor. Ask if he’ll remove the late payment from your credit report. As long as you make the bulk of your payments on time, the creditor should agree.
3. Authorized User
Do you have a parent, sibling, or another relative with great credit? Ask if she’ll add you as an authorized user on one of her credit card accounts.
Once you’re on her account, you don’t need to charge anything to the card. The credit trade lines show up on your account too. Her good credit brings your credit up.
You can also buy tradelines from a company.
4. Resolve Outstanding Accounts
Have any of your accounts gone to collections? Call the creditor and discuss a payment arrangement for getting the debt paid off.
Make sure the creditor will remove the negative hit on your credit report once you’ve paid the balance in full. Be sure and get that in writing before you agree to anything.
5. Debt-To-Credit Ratio
Are you using more than 30% of your available credit? It’s time to pay down some of that debt. If you’ve got too much debt against your available credit, it lowers your score.
Try to keep your debt to 30% or less than your available credit. If you have $10,000 of available credit, keep your debt to $3,000 or less.
Increasing your credit limits can help with this as well. If your payment history is good, call your credit card company and ask for a credit limit increase.
Building Your Credit Score Is Important
If you’re thinking of getting a mortgage or other loan anytime soon, building your credit score is important. Even if you’re not looking for a loan, a good credit score is helpful.
Order your credit reports and look them over carefully and dispute any mistakes you see.
Make sure you fix your late-payment credit hits and resolve any outstanding accounts. Can you be an authorized user on someone else’s account? Consider that option, and keep your debt-to-credit ratio under 30%.
Looking for more good financial advice? Keep reading our blog!