A few points can make a difference when applying for a loan or new line of credit. Your credit score is used by lenders to assess their risk of lending to you. The interest rate they are willing to lend money at can be affected in part by your credit score.
There are things you can do to help your score. Keep in mind that creditors (credit card companies, banks, loan companies, etc.) only report to the credit bureaus once each month. So, while you may get an updated credit score report weekly from your credit card company or through an online service, it takes at least 30 days for your credit report to show new payments and new accounts. In some instances, it may take longer.
The most important factor! New information “weighs” more in credit score calculations than old information. Even if you’ve slipped up in the past, it’s crucial to make every payment on or before the due date going forward. Use your banks autopay system to avoid missing or forgetting about a payment.
Experts suggest keeping your credit utilization to less than 30%. To calculate yours, add up your credit limits across all your credit lines. Divide the total amount of money you owe by your total credit limit. This is your credit utilization percentage.
Some people think it’s a bad thing to keep an unused credit line opened. However, if there isn’t a fee associated with having the account, it can help you. Even if you aren’t using them, keeping an account opened will do two things: A) Increase the length of your credit history, and B) Keep your credit utilization down. Both of those can be positives. Closing an unused account will decrease your total credit limit, which could raise your credit utilization percentage.
This can accomplish two things: A) If you need money, then it will keep recent credit inquiries and new lines of credit opened to a minimum, and B) It can lower your credit utilization percentage as mentioned earlier. This assumes you aren’t increasing your credit balance by the same percentage as your credit was increased.
Demonstrating the ability to manage different types of credit, whether it’s a personal installment loan, credit card, or any other type, represents a portion on your score. Your credit score isn’t a measure of how you handle money in your day-to-day life. It’s a measure of how you handle debt. Some financial experts say it should be re-named your “debt score.” You shouldn’t just open new accounts without a purpose, but utilizing different credit options when needed, and following the previous tips, should help your credit.
Remember you can get your free credit reports online once every 12 months from each of the credit reporting bureaus (Experian, Equifax, and TransUnion) at annualcreditreport.com. This is the only federally-approved website offering free credit reports.