Your credit score is more than just a number. It's what banks and other lenders use to determine your eligibility for mortgages, credit cards, and other loans. Your credit score is constantly evolving to reflect your money management skills and trustworthiness. Each month, your current lenders will report to credit agencies who keep a report of if and when you pay your debt, and how much you put toward it; that report will determine your overall credit score. If your score is low, you can improve it and increase your chances of being eligible for future loans and opportunities.
If you're trying to improve your credit score, it's important to know what's on your credit report and how that affects your chances of obtaining new credit. You can get a copy of your report from any credit bureau, or you can use services such as Credit Karma or FreeCreditReport.com to access to your report and credit monitoring services for free.
Monitor your credit report for inaccuracies each month. False information such as an incorrect address or phone number, accounts you didn't open or apply for, and payments you've made that were not reported could all be hurting your score. Glitches in the system or wrong information reported to the wrong person often lead to mistakes, and you want to catch both these and any indicators of identity theft. Be sure to contact each credit bureau if you find inaccuracies, and provide a detailed explanation and proof of your correct information.
If you're using more than 30% of the available credit on your credit cards, loans or lines of credit, it may be reflecting poorly on your credit score. If your debt is nearing the limit on some accounts, it's best to begin making larger payments on those accounts first so you can work towards improving your score faster.
When opening new credit accounts, your lender will look at how many open accounts you have and how much you owe altogether. Even if you owe less than 30% of your available credit, the debt will be taken into account by banks and other lenders. If you are able, pay off credit cards and other accounts in full; this will positively impact your score and your chance of opening new credit accounts.
In this day and age, more and more companies use online billing and no longer send paper bills each month. This can leave many of us without the important reminders we rely on to make our monthly payments on important accounts. Setting up automatic payments through your bank will ensure you make all payments on time, and none of your lenders will report you to your credit bureau as unpaid.
If you find you're making too many payments each month, it can be more convenient to open a line of credit to consolidate your debt and pay off your cards and other loans. In many cases, this can make monthly bill payments more convenient. You also save plenty of cash that would otherwise go to interest on multiple accounts.
Your credit score is largely determined by the ratio of credit used to credit available across your accounts. A good way to increase this ratio and add more available credit to your report is by asking your lenders to increase the limits on your credit cards and other revolving credit.
Every time you apply for revolving credit such as lines of credit or credit cards, an inquiry is made on your account by the lender. Each time this happens, your score falls temporarily. An inquiry or two every so often won't make a huge difference to your score. That said, multiple applications for revolving credit occurring at the same time is often viewed negatively. This can have a poor impact on your credit score. Credit bureaus do make exceptions for people who are shopping around for mortgages or other large loans.
If your spouse -- or a friend or relative -- has exceptionally good credit and is willing to authorize you on their credit card, it can help improve your credit score. It's important, however, to set clear boundaries and rules with both the credit card holder and lender regarding whether or not you're able to use available credit and how you can access it.
You may be tempted to close your accounts and cut up your credit cards once they've been paid off. However, that can negatively impact your score. Having plenty of available credit contributes to a high credit score and closing your accounts will drastically reduce the amount of credit that's available to you.