Your credit score is an all-powerful number, capable of determining whether you get that new loan, car, or apartment. Banks use your credit score to determine your credit risk--the higher the score, the lower the risk and the more appealing you look on paper, which can give you better interest rates on loans. Even job applicants can have their credit scores pulled by employers, as a means of determining if they'll be a risky hire for the company.
And now it is arguably more important to have a great credit score, since banks have been forced to write off record levels of credit card debt and are requiring borrowers to have higher credit scores. "Because of the recession, a lot of issuers are closely scrutinizing your credit score," says Bill Hardekopf, a credit expert from LowCards.com. Now, a FICO score in the mid- to high-700s is considered a great credit score, according to Hardekopf.
To land yourself in that credit-friendly range, consider these six surprising ways to boost your credit score:
Vet your credit report for errors. It may sound hard to believe, but Hardekopf says one way errors make their way onto your credit report is when someone else shares the same name as you and the credit-reporting companies mix up your activity. More likely, identity theft has taken place, in which case your credit report's payment history--which Anthony Sprauve of FICO says accounts for 35 percent of your credit score--will be chock-full of errors. So you'll want to check to make sure you're actually the one responsible for all of the things appearing on your credit report. If you're not, contact the credit-reporting agency to correct the errors. At annualcreditreport.com, you can get a free copy of your credit report from each of the three credit bureaus: Equifax, Experian, and TransUnion. Beverly Harzog, Credit.com's credit expert, suggests spacing out your free copies so you receive one every four months and can check for identity theft or clerical errors throughout the year.
Don't take out too many cards. To keep your credit score high, limit the number of credit cards you apply for within a short period of time. "Every time you apply for new credit, that application shows up on your credit report, so you'll shoot yourself in the foot if you apply for a number of credit cards hoping to get one," Hardekopf says. The more cards you apply for, the more likely you are to be seen as a "credit seeker," a less-than-desirable label for someone who wants to maintain good credit. "You don't want to apply for credit that you don't need," adds Liz Weston, author of Your Credit Score.
The less debt, the better. A lot of credit card users think they have to carry debt on their credit cards to have a good credit score, which is not true, Weston says. "There's this idea that there's a hard-and-fast line of how much credit you should be using," she says. "The reality is, the less credit you use, the better." Ideally, you want to use less than 10 percent of your credit limit. If you use a lot of credit each month and are paying your bill in full, Weston says you may still be hurting your credit score. The balance that is reported to the credit bureaus is from whatever day the bank chooses, so it might be on a day that you're close to your credit limit. That's why making more than one payment each month will benefit your credit score, says Harzog.
Don't wait to pay off your bill all at once. You don't have to wait until the first of the month, or whenever your credit card is due, to make payments. You can make little payments throughout the month--micropayments--which will help lower your debt quicker. Such small payments help your credit score because they lower your debt utilization ratio, which accounts for 30 percent of your credit score, according to Sprauve. That ratio is how much debt you've accumulated on your credit cards divided by the credit limit on the sum of your credit cards. "You want to keep that at around a third, or 33 percent," Hardekopf recommends.
More credit can be good credit. Don't be afraid to ask for a credit line increase, which will improve your credit utilization ratio. "If you have a card you like a lot and use a lot, and are good at paying it off, ask for a credit line increase," says Weston. However, proceed with caution: "You should not call and ask unless you're a really good card holder," says Harzog. If you don't have a good credit history and ask for a line increase, the bank might see you as a credit risk and reduce your limit. "It can backfire, so be careful," Harzog warns.
Keep your cards active. Simply having a credit card is not enough to maintain a good credit score. "It's important to use the card, even if you just buy lunch. That way, it will get reported," says Harzog. "You want to show that you can use credit responsibly." So don't close credit card accounts when you're not using them; that will bring your score down. Keep them active, so that you have as much credit history established as possible. Says Sprauve of FICO: "The longer you have an account, the better."
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