Almost no one is perfect when it comes to credit scores. The average score for Americans has been inching up over the past decade and is now close to 700. Many lenders consider that a good number, but the highest possible score is 850, according to Fair Isaac Corp., or FICO, which developed some of the most widely used models for credit scoring. The lowest possible score is 300.
So how can you nudge your score higher? Here are some simple steps you can take to improve your credit score over the next year:
- Make your credit card payments on time every month. Pay every bill by the due date, even if you can only cover the minimum due. The biggest factor affecting your credit score is your payment history on installment loans, credit cards and other debt. It accounts for 35% of your score. So if you have a good track record with paying your bills on time, it can go a long way toward improving your credit score. If you have trouble remembering payments, look into online automatic bill pay from your checking account. Your check won't get lost in the mail either.
- Pay off your debts as soon as possible. Ideally, you'll want to get rid of bills that charge the highest interest rates first. But as long as you're eliminating debt, you're taking steps to increase your credit score. You can use loan calculators to figure out how long it will take to pay off your debts.
- Check your credit reports. Visit Annualcreditreport.com to get a free copy of your credit report from each of the three major bureaus — Equifax, Experian and TransUnion — once every 12 months. You'll want to make sure there aren't any errors or other problems in your records. If you find a mistake, alert the reporting bureau about it and ask for a correction. It would also be a good idea to send the same message to the lender that provided the information. Fixing errors can take months, but keep in mind that if you don't ask for corrections, no one else will. So do your part to make sure your records are 100% accurate.
- Don't rush to close a credit card after paying it off. Your credit score may improve if you reduce the amount of credit you're using compared with the amount you have available — a measure known as credit utilization ratio. An unused but open account can help your utilization ratio. A closed account can't.
When it comes to credit scores, chances are there's room for improvement. By consistently paying your bills, getting rid of existing debt and checking your credit reports for accuracy, you can gradually improve your score and increase your chances of getting approved the next time you need to apply for a loan.
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