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Ten Ways to Build A Better Credit Score

by Lindsey Roberts on June 20, 2012

Many consumers are haunted by the spectre of a bad credit score. Individuals who have poor or bad credit often have problems securing financing, renting homes or apartments and getting basic services such as television and phone lines installed in their homes. When one considers everything that credit scores impact, it’s easy to see that a credit score is more than just a number.

A credit score is a three-digit number that banks and financial institutions use to predict your level of credit risk. In other words, this score is used by banks to determine if you’ll be able to pay back loans or handle debt. A credit score is derived from an algorithm, or a mathematical equation that weighs your total debt load against payments made, delinquencies and the overall status of credit-based accounts.

Credit scores range from 300 to 850 on the FICO scale. Most mortgage lenders require that borrowers have a credit score of at least 640 in order to qualify for home loans. A consumer’s credit score is used by many banks and institutions. Individuals who want to apply for mortgages, lines of credit or credit cards must submit to a credit check. Landlords also use credit checks when evaluating rental applicants. Some employers even use credit checks to see if a potential employee is fiscally responsible.

Individuals who suffer from poor credit scores are often overwhelmed by their inability to gain financing for a new car, cell phone or other needed item. They may even have difficult finding a place to rent. Thankfully, there is relief for individuals who suffer from poor credit. With a little effort and a commitment to improvement, almost anyone can bring up his or her credit score over the course of a year.

Understanding Your Credit Score and Credit Report

One of the first steps in maintaining good credit is to read and understand your credit report. You can get a free credit report from the three major credit reporting bureaus every year by visiting the Annual Credit Report website. Carefully check your credit report to be sure that all the accounts reflects were opened by you. Look for any inaccuracies and be prepared to report them immediately to the credit reporting bureau.

Many young adults struggle to decide when they should start building credit. Should you do so as soon as you turn 18? Should you wait until you have a full-time job? While this is a personal decision, it is generally a good idea to begin building credit slowly as a young adult, increasing your debt load over time. It’s essential that you open a checking and savings account, which are viewed favorably by financial institutions that offer loans and credit cards.

Developing Strong Credit

Whether you haven’t established credit yet or are suffering from bad credit, there are many steps you can take to boost your credit score. Review the following ten tips. You may also wish to talk to a financial adviser if you are suffering from severe debt problems.

  1. Share credit with a friend or family member. If you’re new to the credit game or if you have damaged credit, it can pay to share a line of credit with a fiscally responsible friend or family member. You can learn how to manage money from an experienced mentor and improve your credit report at the same time.
  2. Find a great credit card. A credit card can help you to build credit so long as you use it responsibly. Remember to carefully review information about a card’s interest rate. Interest rates generally aren’t fixed but it pays to look for a card with a low starting rate.
  3. Mix your credit types. It’s important to mix up the types of debt you carry. Having a credit card, cell phone contract and store line of credit is a great way to diversify. Be sure that your debt isn’t just on credit cards.
  4. Always pay your bills on time. It goes without saying that paying your bills on time will help improve your credit score. If possible, always pay your balance in full. You’ll get a good payment record and you’ll be debt-free at the end of each month.
  5. Manage your debt load. Keep a close eye on your debt load. If you start to spend more than you can afford, scale back. Ask friends and family members for assistance. Keep credit cards at home so you’re not tempted to make impulse purchases.
  6. Communicate with creditors. If you must be late on a payment, communicate with creditors as far in advance as possible. They may extend your payment due date or help you find a debt management program.
  7. Get help as soon as you notice a problem. If you struggle to pay credit card bills or are worried about how you’re going to pay off debts, get professional help. Find a reputable credit counseling agency that can help you learn how to manage your debts. Be wary of debt management agencies that promise instant results. Rebuilding your credit will take time.
  8. Develop a budget. Make sure that your earning, spending, debt and savings are balanced. Create a budget and stick to it by carefully tracking all of your spending.
  9. Get in the habit of checking your credit report. It’s important to check your credit report every year. Look for inaccurate information. Make a list of accounts that you would like to pay off within the next year.
  10. Dispute inaccurate information. It’s essential that you alert credit reporting bureaus if your credit report contains inaccurate information. You can send a letter to dispute inaccurate information. If you think you have been the victim of identify theft, contact your bank and any creditors immediately and ask them to monitor activity of your accounts.

Categories: Advice, Building Credit

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