Your credit score is a figure lenders use to decide whether or not to give you credit or a loan, to determine your credit limit, and sometimes the interest rate you will pay. Landlords may also use it to decide whether or not to rent you an apartment. Services such as gas, phone, and electric may require a higher deposit if you have a lower score. It pays to get and keep your credit score as high as you can.
What’s your score?
If you are having trouble obtaining credit or a loan or renting, or if you are being hit with higher interest rates than others you know, your credit score may be to blame. To find out if this is the case, you need to get a copy of your credit report. The three nationwide companies that produce credit scores are Equifax, Experian and TransUnion. The Fair Credit Reporting Act requires these agencies to give you a free credit report once every 12 months if you request it. This can only be done through a central facility (by website, phone or mail) they have set up. Get a copy of your credit report from each of the three companies (they can vary) and go through them carefully. If there is anything you believe is inaccurate, contact both the reporting company and whoever provided the company with the incorrect information.
When is enough enough?
As far as credit cards are concerned, the fewer the better. There can be very good reasons for having a number of credit cards, but using them to increase your overall credit limit is not one of them—especially if you take out a number of new cards over a short period. The rating companies do not like this. They see it as risky behavior—and they’re probably right.
Pay your bills on time
Paying all your bills in full on time is the best way to get and keep a good credit rating. If you just can’t pay the full balance of your credit card, at least make the minimum payment on time. This can actually be better for your credit score than paying the full amount even a day or two late, which can be penalized in your credit score as well as costing you an exorbitant amount in fees.
Don’t transfer balances; pay them off
Don’t fall into the trap of transferring balances to a card promising a low introductory rate without very carefully reading all the fine print. Believe me, there’s almost always a catch, and the credit scorers are prone to see transferring balances as a bad sign. It is far better for your credit score to pay off your balances as fast as you possibly can.
Make a fresh start
Having paid out your outstanding balances, take out a few new cards that really suit your needs and offer the longest billing cycle. Then pay the outstanding amount each month on time. Your credit score will soar. If you can’t do that, look for cards with the best compromise between long billing cycle and low interest rate and pay off as much as you can of the balance each month on time.
Don’t spend to your limit
Credit rating companies start to get concerned if your balance is regularly more than about 25% of your limit, and will lower your score, which will lower the credit limit you can get, and so on.
Don’t go bankrupt
You may have seen ads suggesting the way out of all your financial difficulties is to go bankrupt. Don’t believe it! Bankruptcy is the absolute death knell of a credit score, and you must avoid it like the plague.
Don’t be foreclosed
Foreclosure is almost as big a disaster to your credit score as bankruptcy. Don’t let it happen! Act fast and act early—as soon as it looks like you may have trouble making repayments. Talk to your lender and try to work out a solution. Explore all avenues of government assistance.
Annual Credit Report Request Service
Fair Isaacs Corporation
Your credit report is the basis for your financial standing. No matter how slick or smart you may be, no bank will touch anyone with a low credit score. It's their money, why would they want to take a bigger risk than they need to?
If you don't know where your credit report score is at, now's the time to take a peek. Don't get surprised with a low credit score when you go in to review your report with a potential lender or even an employer, find out for yourself within minutes.