Credit Scores: How to Raise Them and Why They’re Important
It’s important to have a good credit score these days. In the modern world, credit scores have become even more important, as every financial decision you make is recorded and poured into your credit score. Something that needs to be done to help people out is education on the matter; many people don’t know what their credit score is, why it’s important, what goes into it, or how to raise it. Well, for starters, let’s cover a few facts about credit scores:
*What is a credit score exactly? It’s your track record; it shows how reliable you are financially. It’s important—possibly critical, as having a low credit score could cause you hardships and become the obstacle that stands in your way when you want to do something like refinancing a home or putting a down payment on a house.
*They typically range from about 300 to around 850
*Your FICO credit score is the one to look at, and oftentimes you can view it through your bank
*Having a good credit score isn’t just about paying bills on time or being in/out of debt. There are a few key factors that play into what your score will be, and it changes routinely.
*In order to have a good credit score (whether you are working towards getting a better one or want to know how to stay on top of the one you already have), you must remember a few very important things, but we’ll get more into that in a minute.
These foundational tips on credit scores will help you begin to understand your credit score as we dive into how to raise one or keep a good one. On that note, let us dive!
In order to raise your credit score, the following tips are crucial musts:
*Being on top of credit card payments, as well as car payments, house payments, and any other payments you have on a regular basis, brings your score up. Once you start lagging behind, the numbers start dropping.
*The duration of your credit being unpaid is accounted for as well. So, the faster you pay something off, the better your credit score will be. The length of how long you’ve had these particular accounts/credit lines is important as well.
*With that said, you don’t want to go out and pay off all your credit cards, destroy them, and get new lines of credit either. Your credit score takes into account how long you’ve had an account and if you have any new lines of credit.
*Remember: both older and newer credit lines play into what your credit score is
*It’s important to keep in mind that there is more than one model for credit scoring. The one that most people go by, and the one to focus on, is a FICO score. Branched off from this are three credit scores—one from each credit report-giving bureau.
Now that we’ve looked at the basics, it’s time to figure out how to obtain a better credit score.
To raise your credit score, there are quite a few things you can do:
*Something quite simple but sometimes left undone is looking over one’s credit report. Some people don’t think to do it, but it’s actually quite helpful so be sure you do. Look to make sure there aren’t mistakes on it and that everything looks right. For example, a mistake could be a late payment (which was actually an on-time payment).
*Speaking of on-time payments, be sure to pay all your bills on time and pay your balances on credit cards on time. Giving yourself a reminder of some sort, or setting up automatic payment services for your bills, will help keep you on top of things so you can keep your credit score high or get it even higher.
*Don’t use your credit card when you don’t have to or when you don’t have the money. People tend to use credit cards as “get out of jail free” cards, using them when they can’t afford something, but that’s how you get yourself in trouble and stack up a bunch of credit and interest that will take so much longer to pay off than just saving up for what was bought with the card in the first place. Obviously using your credit card is helpful in building up a credit score, and even necessary, so simply be responsible with using it. For example, go out and do grocery shopping with a particular budget in mind, and then when you are done, put the money you spent back into your credit card. If you do this, you won’t find yourself buried in credit card bills and you won’t have to pay interest on what you bought.
*Although you need to use a credit card to build onto your credit score, you shouldn’t go too wild with opening credit lines and getting new credit cards. This could actually hurt your credit score, as your credit score takes the longevity of your lines of credit in account (and not to mention the financial trouble you could possibly get in if you have multiple credit cards—the temptation to use one could be stronger and you could find yourself in a big pile of debt, especially if you already have a maxed-out credit card).
*Stay on top of your payments and play catch-up on the bills you are behind on. Staying current will greatly help your credit score.
*It’s important to remember that paying off a credit card won’t show up right away, and getting into a bad situation won’t go away immediately after it’s dealt with. After you pay off a line of credit, it still shows on your credit score for about seven years.
*Although the longevity of credit lines show up in your credit score, opening up a new account could be beneficial to you in the long run. So, if you are looking at things long-term, paying off your credit and opening a new line of credit could be a big help in getting you a better, higher credit score. You may want to get in touch with a financial advisor to ensure you are doing what’s best for your individual situation.
From the lists above, you can see that there are many things you can do to help get that higher, better credit score, and knowing the basics and what directions to go in are the first steps. To prepare for the future, like getting a house or car, learn what your credit score is, print out your credit report, and then talk to someone in the financial field who can help you best decide which steps to take to better your credit score and prepare for the future.