1. Pay Your Bills On Time
This is the key to having a good credit rating because lenders want to see that you have accounts in good standing because you are responsible enough to pay them when the bill is due. About one third of your score is based on your history of paying your bills on time. Make sure you pay all bills on time including your phone bill, electric bill and of course your credit card bills.
This should not be that hard to do but perhaps you are a little forgetful. That is a serious problem because even just one or two late payments on your report can have a dramatic affect on your score. Luckily, there are ways that you can help yourself pay the bills on time.
- First on your list should be setting up automatic bill pay. If you want to pay more than the minimum or vary the amount you pay each month that is great but set your accounts up so that the minimum payment on your loans is paid automatically. You can go back later and pay a little extra if you like.
- Second, consider changing your due dates to something that is a bit easier to remember. Many creditors will allow you to change the due date. Set up all of your bills to be paid on the fifth and the twentieth, for example. You can then set aside time on each of those days to pay all of your bills.
2. Keep Your Balances Low On Revolving Credit
The magic number here is 30. Your balances should be under 30% of your available credit. If you are carrying more debt, you are hurting your credit score. This is called credit utilization and if you use too much, it makes it appear that you are not using it responsibly or that you are overextended. Now that you know this is a problem, here is what you need to do about it.
- First and foremost, you need to pay down the debt on your revolving credit accounts. You probably do not have enough money to pay all of your accounts down to below thirty percent but that is okay. Every dollar that you pay an account down helps because there are incremental improvements.
If your accounts are charged up, you do not just see an improvement when they reach 30% or less. There will be credit rating bumps along the way. Pay it down to 80%, get an increase. Pay it down to 60%, get an increase. All along the way, you will see an improvement as you lower the balances on your revolving credit debt.
- Next, you need to change the pattern that has allowed your credit cards to become charged up. Stop carrying your credit cards with you and try to use cash as much as possible. There is a psychological attachment for most of us with cash. This makes it harder to spend. If you switch to spending cash you will stop charging up your cards and probably start spending less money altogether.
3. Keep Paid Off Cards Open
Paying off credit cards is a great thing but it often leads people to make a big mistake. They like to pay them off and then close them so that they will not be tempted to use them again.
In most cases, this is a huge mistake. Closing a credit card account will lower your available credit and will cause an increase in your credit utilization. It could throw you over that magic 30% number. Here is what you should do with those old cards.
- If they have an annual fee, you should close it after first trying to get the fee waived. A paid off card is a good bargaining chip. Your credit card company knows that your account is paid off and you have the actual ability to close the account. They also want you to keep the card and charge it up again. Call them and ask them to waive the annual fee. If they refuse, close the account. It is as simple as that.
- If your credit account has no annual fee, you should keep it, plain and simple. You gain nothing by closing the account. The only problem that you face is account closure by the credit card company if they see the account as inactive. To combat this, it is usually sufficient to use the card once every six months. Pay it off immediately when you get your statement to avoid interest.
4. Ask For Credit Increases
Your credit card company will not always give you an increase automatically. If you have been paying on your card faithfully, you should call them up and ask for an increase. Here are the best times to ask for an increase.
- If your credit score has increased dramatically since you first obtained a card, you may be due an increase in credit. This is probably also a good time to ask for an interest rate reduction.
- An increase in income is also a good reason that you should be extended a credit line increase. Some card issuers will ask you for proof of your income while many just have you periodically enter your salary on their website.
5. Keep Inquiries Low
This is especially important if you plan on making a major purchase soon or applying for a big cash loan. A lot of inquiries on your credit could mean a lot of new open accounts. Inquiries precede the actual account reporting so it could mean that you are fixing to run up your credit.
- A hard inquiry will remain on your account for two years but it will only have an affect on your actual score for one year.
- Just like everything else on your report, an inquiry can be disputed. If you believe that you did not authorize a hard inquiry, you can dispute it. If it is found to be inaccurate, it will be removed.