How to get a better Credit Score

You’re smart, you have a good job or own a small business, and are taking steps for your financial future. However, if you’re like most people, you might not know exactly what makes up your credit rating and what you can do to help it. These credit building tips cover information you might not have received in high school or college, but need to know.

1) Paying ALL of your bills on time is the best way to build a good credit score. The largest part of the scoring formula is Payment History. Skipping a month or two of payments can result in a 30-day late payment showing up in your credit file. Late payments hurt your scores and can stay on your credit report for SEVEN YEARS.

CREDIT BUILDING TIP: Set up a bill paying schedule on-line, in your planner or on your calendar to be certain your bills are paid well before the due date.

2) Saying YES to the credit card offer at a concert, college, or a store that is offering you a 10% discount that day, is a loan application that will show up as an inquiry on your credit file. The inquiry will stay on your report for TWO YEARS and have a negative impact for at least the first year.

CREDIT BUILDING TIP: Limit the number of credit applications you approve. You only need one or two revolving accounts to build a good credit rating.

3) Credit cards are NOT the same as cash. When you use a credit card of any type, even retail store and gasoline cards, it is a promise to repay that amount PLUS interest. That $200 stereo could cost between $250 and $300 if you make only the minimum monthly payments on a high interest rate account.

CREDIT BUILDING TIP: Limit credit card use to a few times a year for a small purchase of something you need to buy anyway such as a tank of fuel or a pair of socks. Pay the account in full when you receive the bill to avoid paying finance charges.

4) It is okay to have zero balance on your credit cards. There is a myth about needing to have some money owed on the account for it to help your credit. NOT TRUE. Your credit score uses a ratio based on your account-balance-to-account-credit-limit. The lower the balance, the lower the ratio, the better the score.

CREDIT BUILDING TIP: Keep revolving account balances under 30% of the credit limit. Don’t “max-out” the accounts by charging the full credit limit.

5) Not paying your bill can lead to the account being turned over to a collection agency. A collection account is a serious negative item on your credit file and can show up years later. Don’t ignore the problem, contact the original company to see exactly how much is owed and be sure it wasn’t already taken care of.

CREDIT BUILDING TIP: To determine if a collection account is legitimate and what it is actually for, request written debt validation from the collection agency. By law, they must provide you with a break down of fees, dates of original service and copies of the original bill if you request it.

6) Get EVERYTHING in writing. When your landlord says, “Don’t worry about it, it’s fine”, or you turn the box back in to the cable company, or you switch insurance companies and call to cancel your current one, GET A WRITTEN STATEMENT saying you did this and there is zero balance due on your account. And then, keep the papers. You may need them in a few years if a stray collection item shows up on your credit.

CREDIT BUILDING TIP: Monitor your credit reports three times a year using your free, annual reports that you are entitled to by law. By checking one from each credit bureau every four months, you can keep watch to be sure no erroneous accounts or information show up and hurt your credit scores.

The first step to being credit-wise is education. By following these steps, you can be on your way to a better credit score now and in the future.