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5 Steps to Improve Your Credit Score

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Having a good credit score is important. But what is a credit score and why does it affect you? A credit score is designed to predict the risk involved when you apply for a loan, credit card, purchase a house or car, etc. The score is determined by five components of your credit habits: payment history, amounts owed, length of credit history, new credit, and types of credit used. A credit score ranges from 300-850. Generally, a good credit score is anything above 700 points. Having a higher credit score increases your chances of qualifying for a loan or credit card with lower interest rates.

Your credit score is important—too important to NOT take steps to improve it. Fortunately, there are some easy, actionable steps you can take to boost your score that will pay off big time in the future.

1. Check your credit reports.  Your credit score begins with your credit report.  You can request three free credit reports during the course of each year.  The three major credit bureaus are Equifax, Experian, and TransUnion.  You receive one free report per year from these companies so it is best to request one every four months that way you can keep tabs on your credit throughout the year.  When you receive a credit report, you will see that it contains data used to calculate your credit score.  It is important to check these reports for errors as having incorrect data can negatively affect you when applying for loans, buying a house or a car, etc.  Look closely for late payments that might have been incorrectly listed as well as the balances for each of your open accounts.  If you happen to find an error, talk with the credit bureau to get the errors taken care of ASAP.

2. Setup payment reminders.  As you may already know, missing or making late payments can quickly damage your credit score.  Establishing payment reminders through online banking can let you know when your payments are due.  To take the next step, you can even set up automatic payments.  As a member of CES, you have access to online banking that gives you this capability.  Setting up payment reminders or automatic payments can help you stay on top of making payments and can reduce excess spending.

3. Utilize a maximum of 30% of your credit.  Part of what goes into consideration for calculating your credit score is your credit utilization.  For example, if you have $2,500 worth of credit that you have been approved to use, it is best to only use 30% of that credit or $750 worth.  Just because you essentially have $2,500 that you could spend, does not mean that you should.  If you find yourself using more than 30% of your line of credit, see what spending habits you can adjust to try to bring that number to 30% or lower.  The principle behind this method is to keep your revolving debt low to increase your credit score.

4. Ask for a credit limit increase.  Tying in with #3, you can also talk with a credit company to get your credit amount increased.  This can help you utilize less of your credit.  Let’s say that instead of $2,500, your credit line increases to $4,000.  30% of $4,000 would be $1,200.  If you were still utilizing $750 of your credit you would be using just under 20% of your credit which will help boost your score.  You do not have to open more credit cards to increase your line of credit and instead can talk with your credit card company to see what they can do for you.

5. Request a good-faith credit adjustment.  If you have faced financial hardships due to unexpected circumstances, it is worth looking into writing a good-faith letter.  The goal of a good-faith letter is to restore your credit to good standing by having a lender or loan servicer erase some lateness on your credit report.  Also, if you have shown good payment history but are still being affected from bad payment practices you made years ago, a good-faith letter would also be a good idea.  Showing that you are able to make payments on time and building trust with your lender might help you catch a break.

Improving your credit score is similar to building trust with a friend.  They both take time to increase but can be negatively impacted in significantly less time than it takes to increase.  When building up your credit history, there is not a quick fix or immediate solution.  However, the more good credit practices you are able to implement, the faster you will see your score improve.  Have patience and be diligent with your financial practices and the results you have been waiting for will come.

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