When lenders review your credit report and request a credit score for you, they're very interested in how reliably you pay your bills. That's because past payment performance is usually considered a good predictor of future performance.
2. Pay down your credit cards frequently
You can positively influence this credit scoring factor by paying all your bills on time as agreed every month. Paying late or settling an account for less than what you originally agreed to pay can negatively affect credit scores. You'll want to pay all bills on time—not just credit card bills or any loans you may have, such as auto loans or student loans, but also your rent, utilities, phone bill and so on. It's also a good idea to use resources and tools available to you, such as automatic payments or calendar reminders, to help ensure you pay on time every month.
If you're behind on any payments, bring them current as soon as possible. Although late or missed payments appear as negative information on your credit report for seven years , their impact on your credit score declines over time: Older late payments have less effect than more recent ones. If you've been making utility and cell phone payments on time, there is a way for you to improve your credit score by factoring in those payments through a new, free product called Experian Boost. Through this new opt-in product, consumers can allow Experian to connect to their bank accounts to identify utility and telecom payment history.
Visit experian. The credit utilization ratio is another important number in credit score calculations. It is calculated by adding all your credit card balances at any given time and dividing that amount by your total credit limit. To figure out your average credit utilization ratio, look at all your credit card statements from the last 12 months. Add the statement balances for each month across all your cards and divide by That's how much credit you use on average each month.
A low credit utilization ratio tells lenders you haven't maxed out your credit cards and likely know how to manage credit well. You can positively influence your credit utilization ratio by:. Don't open accounts just to have a better credit mix—it probably won't improve your credit score. Unnecessary credit can harm your credit score in multiple ways, from creating too many hard inquiries on your credit report to tempting you to overspend and accumulate debt.
Keeping unused credit cards open—as long as they're not costing you money in annual fees—is a smart strategy, because closing an account may increase your credit utilization ratio. Owing the same amount but having fewer open accounts may lower your credit scores. Opening a new credit card can increase your overall credit limit, but the act of applying for credit creates a hard inquiry on your credit report.
Too many hard inquiries can negatively impact your credit score, though this effect will fade over time. Hard inquiries remain on your credit report for two years.
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You should check your credit reports at all three credit reporting bureaus TransUnion, Equifax, and Experian, the publisher of this piece for any inaccuracies. Incorrect information on your credit reports could drag your scores down. Verify that the accounts listed on your reports are correct. If you see errors, dispute the information and get it corrected right away.
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If you have negative information on your credit report, such as late payments, a public record item e. Time is your ally in improving your credit scores.
There is no quick fix for bad credit scores. The length of time it takes to rebuild your credit history after a negative change depends on the reasons behind the change. Most negative changes in credit scores are due to the addition of a negative element to your credit report, such as a delinquency or collection account.
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These new elements will continue to affect your credit scores until they reach a certain age. Rebuilding your credit and improving your credit scores takes time; there are no shortcuts. Then, learn more about how to build credit to improve your scores. And if you need help with credit mistakes from your past, you can learn more about credit repair and how to fix your credit. If you simply don't have a credit score because you have little experience or history with credit, you likely have a thin credit file. That means you have few if any credit accounts listed on your credit reports , typically one to four.
Generally, a thin file means a bank or lender is unable to calculate a credit score because there is not enough information in a user's credit history to do so. There are things you can do to fatten up your thin credit file , such as applying for a secured credit card, becoming an authorized user on someone else's credit card or taking out a credit builder loan. Check out more tips on how to build credit here.
One common question involves understanding how specific actions will affect a credit score. For example, will closing two of your revolving accounts improve your credit score?
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While this question may seem easy to answer, there are many factors to consider. Simply closing two accounts not only lowers the number of open revolving accounts, but it also decreases the total amount of available credit. That results in a higher utilization rate, also called the balance-to-limit ratio which generally lowers scores. One change can affect many items on a credit report.
It is impossible to provide a completely accurate assessment of how one specific action will affect a person's credit score. This is why the credit risk factors provided with your score are important. They identify what elements from your credit history are having the greatest impact so that you can take appropriate action.
Credit scoring involves complex calculations, and the more you know about how credit reports and credit scores work, the more you can take control of your own credit. In addition to knowing the most important factors considered in credit scoring, it can be helpful to know a few other facts about credit reports and credit scores. Seller Inventory NEW Ships with Tracking Number!
Buy with confidence, excellent customer service!. Seller Inventory n. Cash, Ash. Publisher: 1Brick Publishing , This specific ISBN edition is currently not available. View all copies of this ISBN edition:. About the Author : About the Author: Ash Cash is a motivational speaker, business consultant, author, and financial literacy educator who has helped countless people get their finances back in order; from credit, to home ownership, retirement, banking and investments.