5 Easy Ways to Improve Your Credit Score Now

If your credit isn't where you want it to be, it's time for you to take control of your finances and get the credit score you desire.  This may seem like a monumental task but if you take it one step at a time, you just might find it is easier to improve your credit score than you think.

No one ever starts out with perfect credit.  We all take the time and do the work to build our credit.  And so must you.

Even though you may not be where you want to right now with your credit, don't focus too much on where you are.  Instead, focus on where you want to go. 

And this article was written to show you the way.  We'll go over 5 easy steps you can take to start improving your credit now.

To help you understand what you need to do to raise your credit score, you must first understand what a credit score is and what factors they use to assess your credit worthiness.

What is a Credit Score?

A credit score is a score given to individuals to show their credit worthiness to potential creditors.  The score is determined by 5 key factors that show how well someone is able to handle their debt and manage their money.  Most importantly, it determines your ability to pay back debt.

A credit score is a numerical value ranging from 300 - 850 with 300 being the worst and 850 being the best.  This score is determined by credit bureaus which write up a credit report on you annually.

These reports include your bill payment history, your credit card accounts and debt amounts, loans, and other financial information.  They even keep track of where you live, whether you've been arrested, have tax liens or judgments against you, and whether you've filed for bankruptcy.

A good credit score ranges from 670 -  739.  If you have a score between 740 and 799, it is considered very good.  And anything over 800 is considered excellent. 

Having a good credit score is important because it can help you get approved for a loan in the future.  Also, the better your credit score the more likely you are to get a good interest rate which will save you a lot of money in the long run.

Your credit score may also determine whether you will be approved to rent an apartment.  Everyone needs a place to live.  So you'll definitely want to keep it in good standing.

You can get a free credit report every year from AnnualCreditReport.com.

What Affects Your Credit Score?

There are 5 factors that affect your credit score.  These are the things that the reporting agencies such as Experian will use to determine your credit score.  Some factors are considered more important than others so they make up a larger percentage of your score's calculations.

Here are the factors that affect your credit score:

• Payment History (35%)
• Utilization Ratio (30%)
• Credit History Length (15%)
• Credit Mix (10%)
• New Credit Inquiries (10%)

Let's take a closer look at each of these factors.

Payment History

Your payment history is the most important factor in determining your credit score.  Here they will look at whether you have been paying your bills and if you have been paying them on-time.

Missing payments or paying late can really damage your credit score as your payment history makes up 35% of your total credit score.  So make sure you pay on time every time. 

Also, the later you pay the worse your credit score will be.  So if you realize you missed a payment, pay it ASAP.

Utilization Ratio

This key metric looks at how much of your lines of credit are being used.  To put it simply, they want to know how much money you owe compared to how much money you can borrow.

This really comes into play with credit cards.  The more of your credit limit you use the lower your credit score will be.  That's because it is an indication that you are not managing your money well.

For instance, if you have a credit card with a $5,000 limit and you use $4,000 of it, your score will be much less than someone who has only used $1,000.

Experts recommend that you keep your utilization ratio below 30%.  This will keep your score in the green. 

Credit History Length

Another factor that affects your credit score is your credit history length.  The longer the history the more positively it will affect your credit score.  If you have a very short history, it will negatively affect your score.

This is because the longer your history, the more they can accurately see how you handle credit.  With a short history, you are sort of an unknown and much more risky for lenders.

One thing to be careful with here is not paying attention to or using your old credit cards.  Because if those cards are one of your first and it is closed because you weren't using it anymore, then your 15 years of credit history could suddenly become 5 years.  

This would have a significant impact on your credit score and not for the better.  

Credit Mix

Creditors like to see that you can handle any and every kind of debt responsibly.  That's why your credit mix is an important factor when determining your credit score.

This credit mix would include things like credit cards, of course, but also, mortgages, car loans, and even student loans.  People with excellent credit tend to have a good mix.

New Credit Inquiries

If you have ever heard people being worried about whether an application is going to cause a hard pull on their credit, this is the reason why.  

Recent inquiries, or hard pulls, into your credit line will cause your score to go down.  As will opening too many new credit accounts in a short period of time.

Too many hard pulls on your credit back to back can really negatively impact your credit score.  So don't open up too many credit cards at once.  Also, be careful when you go apartment shopping or house hunting.  Make sure your credit isn't being checked constantly.

Nowadays, they tend to lump inquiries done within 30 days as just one hard pull on your credit.  So if you are apartment hunting, try to get all your inquiries done within that time frame.

5 Steps to Improve Your Credit Score

Getting your credit score back on track doesn't have to be hard.  Check out these 5 easy steps that you can start today to make sure you are on the road to credit recovery.

1. Write It Down

You know where you want to go (a better credit score!) so now we just have to figure out where you are.  And to do that you need to be completely aware of your financial situation when it comes to your credit

The first thing you should do if you want to improve your credit score, is to write down all of your credit card bills, loans, etc. in one place.

Open up a spreadsheet in Excel or whip out an old notebook.  Either will do.  Just make sure you write down the card name, the total amount owed, the monthly payments, and the due dates. 

With everything written down in one place, you can see where you currently stand financially.  And just how much you need to pay each month.

Then be sure to make your payments faithfully.  Eventually, you will see your dedication pay off and your credit score increases slowly but surely.

2.  Set Up Automatic Transfers

Once you know how much you have to pay and by when, set up automatic bill payments with your bank.  That why you don't have to remember to do it yourself.  And getting your bills paid on time will be easy.

What messes up a lot of people's credit scores is the fact that they miss payments or don't pay their bills on time.  So by setting up automatic payments you ensure that your bills are paid on-time and in full each and every month.

3. Pay Double 

When it comes to paying off any kind of debt, creditors will always give you the minimum amount you need to pay per month.  But by only making the minimum payments, you are extending the time it will take you to pay back the debt completely. 

This is great for the creditors as they want you to take as long as possible to pay it off so that they can get more money from you through interest.  So instead of just making the minimum payments on your credit card debt or loans, trying doubling up on them.

By doing this, you'll pay back your debt so much faster saving you a lot of money and interest.  And you'll increase your credit score while you're at it.

4.  Use Old Credit Cards

A big mistake that a lot of people make is locking away their credits and never using them again or closing their old credit card accounts.  But since one of the key factors that determine your credit score is the length of your credit history, closing them is a bad idea.

By closing your account or not using your old cards so that the company closes your account, you automatically cut down the length of your credit history.  And since that is 15% of your credit score that can have a significant impact on it.

So to keep all of your credit cards active and your credit history going strong, make sure you use your credit cards every now and then.  And be sure to pay special attention to the ones you definitely don't want to close, i.e. the ones with the longest history.

5. Ask for Credit Line Extensions Regularly

Since one of the biggest factors in determining your credit score is your credit utilization ratio, it is best to make sure you have much more credit available than the credit you are using.

So get in the habit of calling your credit card companies regularly, to ask for credit limit increase.  With each increase, your credit score will go up.  

Also, be sure to keep your annual income updated as this helps the companies determine whether or not to increase your limit.  With an updated income, some may even increase it without your having to ask.

All in All

It is important to have a good credit score because the better your score the better the rates you will get on home loans, auto loans, etc.   This could end up saving you tens of thousands of dollars in the long run. 

So take the time to implement the steps we discussed above to improve your credit score.  Matter of fact, start now!

You won't notice changes immediately but over time you'll see your credit score increase by leaps and bounds.  And what a good feeling that will be!