5 Ways To Improve Your Credit Score

Many of you think graduating from school means you are done and over with report cards

. Wrong. As adults, you have a new kind of report card that determines whether you will be "grounded" - credit report. Creditors use this type of report card to know whether you can repay the money you borrow.

When you have high credit score, creditors will qualify you for more loans and reward you with more attractive interest rates. This means you can buy your dream car or house without much difficulty. To avoid being grounded, credit scores must meet a "passing grade," otherwise creditors will lend you money at very high interest rates. Worse, they may refuse you when lending money. Here are some things you can do to boost credit scores and improve creditworthiness.

Reducing your credit is one way to improve credit score. The Fair Isaac Corporation (FICO) score largely depends on the amount of credit card debt in relation to the available credit you have. A rule of thumb to get higher credit scores is to maintain balances below 25% of your available balance.

It is important to always pay on time. However, if you know you will get some type of credit in the future, it is best to pay promptly in months near the time of your credit application. Missed payments and recent late payments can affect a score more than those made several years back.

Pay off rather than transfer balances. One myth is that when you transfer balances from a credit card to a new card then closing the old card off, is an excellent way to improve credit score. Not exactly true. Actually, closing one card means lowering the ratio of used balances to available balance. This, in return, can lower credit score.

If you are certain of applying for credit in the future, do not close any unused credit card accounts. Just keep them. If you close them, it would reduce your available balance. On the other hand, as much as possible, do not open new accounts before applying for a loan. A short credit history can lower credit score, since there is no track record of all payments. In addition, opening a new account will lower the age of accounts. This is another factor that affects your FICO score.

Lastly, you need to correct errors in your credit report. If there are mistakes, your report may be reflecting a grade lower than you should have. So review your credit reports once or twice every year just to ensure that there are no errors.

by: Leo Chu

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