Your credit score plays a huge role in your financial life. It determines how much interest you will pay on loans and if you will even get a loan in the first place. It also affects you in a lot of ways that you might not even think about. Did you know that if you have bad credit you might pay more for auto insurance and that employers might not hire you? Yes, without a good credit score, you will face a lot of financial adversary. Luckily, getting a credit score that you can be proud of is no mystery.
To get a good credit score, you simply need to follow a simple formula. Here is what you need to do.
Pay Your Bills On Time
This is the biggest factor in your credit rating. It makes up about a third of your credit score. Just one 30 day late strike on your credit report can lower your score dramatically.
If you have a late pay or late pays on your report, don’e give up though. There is hope. Start paying your bills on time and in as little as six months, you can start seeing improvements on your score. Here are some ways to start paying those bills on time.
- Sign up for automatic payments. If you are like me, you like doing things yourself but if you are a bit forgetful, automatic payments are the way to go. These days you can put everything on automatic payment. Credit cards, phone bills, car payments, even the electric bill can be paid for you. All that you have to do is make sure there is money in the account.
If you like paying more than the minimum on your credit cards or auto loans, set the auto pay for the minimum amount and then go back later, when you remember, and make an additional payment.
Do you have a bill that does not offer automatic payments? Set one up with your banks online banking. You can have a check automatically mailed.
- Change Your Due Dates
Many of your creditors will allow you to change the due date for something that works better for you. This can allow you to align your bills better. You can then set aside one or two days a month to sit down and pay all of your bills.
It can also help you budget by splitting your bills up sufficiently so that you do not have to get money from one paycheck to pay all your bills.
- Set Up Reminders
Sign up for bill reminders, emails that you will get a few days before a payment is due. When you get your email, don’t disregard it, log in to your account and pay the bill right away.
Keep Your Balances Low
Ideally, you should keep your revolving credit balances below 30 percent. Any more than that and your score starts to drop. So, if you have a $1000 limit, try to keep your balance below 300 dollars. Having a high amount of available credit shows that you are responsible with the credit you have been given.
The good thing is that this is not an all or nothing situation. If your balances are at 90% and you drop it to 80%, you will see an increase in your credit score. Your score will keep incrementally dropping as you lower your balances.
In order to really make those credit card balances drop, you need to do two things.
First, you need to cut your cards up. Stop using them right away. If nothing else, stop carrying them with you because it is just too easy to put something on a charge card. Cash or even debit is much harder to spend.
Second, you need to start paying more than the minimum payment, even if it is just a few dollars more. You can shave years off of the time it would take to pay those balances down.
Here is a little tip to get your balances down to a lower percentage. Call your credit card companies and ask for a credit line increase. If given one, it works the same as lowering your balance. If your credit line goes up and your balance stays the same, the percentage you are using will drop.
Dispute Negative Information
Credit reporting agencies are far from perfect and mistakes happen all the time. Pull your credit report at all three bureaus (Experian, Equifax and Tans Union) at least once a year to check for errors. You are entitled to one free report a year.
If you notice an error, you will need to send a dispute letter to the bureau. They then have 30 days to investigate the issue. If the information can not be proven, it must be removed from your report.
In addition, you can uses free services like Credit Karma to monitor your report to make sure nothing false gets added to it. You should pull a full report once a year but it is a great idea to constantly monitor it.
Keep New Inquiries Low
Although this is a lesser factor than the things above, it still has an impact. A lot of inquiries could signify that you are charging up your credit by opening new accounts. An inquiry would hit your report before a new account opening so it is a potentially negative sign for creditors.
Inquiries stay on your report for two years although they only affect your score for one year.
Let’s Pull It All Together
Getting a good credit score is not complicated, it just takes a bit of discipline. It all comes down to just a few things.
- Pay Your Bills On Time
- Keep Your Balances Low
- Keep Your Credit Report Accurate