Is your credit score less than perfect? If so, you’re not alone. In fact, almost nobody has a perfect credit score. A perfect credit score is 850. But is this number even reachable? Is a score of 850 even necessary? Your credit score is important because the number greatly influences how much credit you can obtain and also the interest rates that you will be offered on all types of loans – including general financing, mortgages, and credit cards.
Following is a description of how credit scores are typically classified:
Less than 500: Very Bad
If your credit score is anything lower than “Excellent,” there are many steps you can take to fix or improve it. But don’t delay. The sooner you start working to improve your credit score, the better. It takes time to get the number to rise, and the process might take a bit of time-consuming effort. But the hours you spend working on fixing your credit problems will be well spent. The sooner your credit score shifts to a higher category, the faster you will reap the benefits of a better score.
Get Copies of Your Credit Report
The absolute first step you must take is obtaining a copy of your credit report. Websites such as www.freecreditreport.com and www.annualcreditreport.com offer free credit reports to consumers who fill out a form and submit their answers to a few questions. After you receive your credit report, you should examine it very carefully. Are there any errors – even tiny ones? Errors on credit reports are not uncommon. If you find any, they must be corrected. All errors should be disputed with the three major credit reporting agencies: Experian, Equifax and TransUnion. Details on how to dispute errors on your credit report can be found on the Consumer Financial Protection Bureau’s website.
Make Sure You Make Payments on Time Every Month – for at Least the Minimum Amount You Owe
If you make late payments to your credit card companies, to your mortgage company, or even to utility companies, your credit score will be negatively affected. Some people have been successful in curbing their habitual problem of paying bills late by setting up automatic payments. Almost all companies that lend money have systems in place to debit your bank account for the minimum amount you owe them each month. Making payments on time is critical to improving your credit score.
Don’t Carry Too Much Debt at Once
When you have significant outstanding balances on revolving credit accounts, your credit score will be affected negatively. Try lowering your debt level instead of moving it from one account to another in order to get a better interest rate. Additionally, opening new credit cards so your available credit to debt ratio appears higher is a bad idea. Credit reporting agencies often lower a person’s credit score when this tactic is suspected.
Other Simple Tips to Improve Your Credit Score:
- Contact a credit counselor if you can’t figure out how to effectively manage your debt.
- Don’t open too many credit accounts within a short period of time.
- If you open a new revolving credit account, get it paid off as quickly as possible.
- Always report credit card fraud immediately to your state attorney general’s office and the Federal Trade Commission.
- Protect yourself from identity theft.
- Don’t apply for new credit accounts unless you really need them.
- Have more than one type of credit on your record (e.g. not all revolving accounts).