Five Steps to a Better Credit Score

No it’s not a game. Although a credit score may seem like an abstract number with little relevance to your every day life, a low credit score may eventually have very negative ramifications. A credit score can be the determining factor of whether or not someone can afford a new home. A credit score is even used by some employers as part of the hiring process.

Many people end up accruing very low credit scores. You may be left wondering how to raise the score higher. Here are some of the simplest steps you can take to rebuild your credit score.

Pay On Time

One strong step you can take is rather simple. Pay all your bills on time. Paying your bills late may be one of the behaviors that really started to damage your credit score. Paying your bills on time is one way to prevent the score from going even lower. It will also eventually allow your credit score to crawl higher again. Typically, about 35% of a person’s credit score is determined by their payment history alone.

Pay Down Debt

Secondly, you should begin working towards paying off all your outstanding debt. This may be a bit of a challenge for people who have amassed a significant amount of debt. It may take some time and hard work, but paying it off will certainly be better for you in the long run. First of all, you will no longer have to be paying essentially more than you owe via interest charges. Secondly, lowering your debt will also allow your credit score to rebuild itself over time.

No New Accounts

Third, make sure not to open any more credit card accounts. If you do open more, it will more than likely lower your credit score even more. One of the most commonly used credit scores, FICO, will lower your credit score and not allow it to rise again for six months after opening a new account.

Maintain Low Balances

Fourth, make sure to keep the balances on your credit cards relatively low. You should try to keep the balances at 45%. If you can, make sure they are even lower than this. The information related to the balances on your credit cards typically makes up about 30% of a person’s credit score. You should also make sure the credit card companies are reporting the amount of credit available to credit reporting agencies so this has the most impact on your score.

Leave Unused Accounts Open

Lastly, don’t get carried away and close all your credit card accounts. You need to be much more selective than that. The cards you select to keep should be ones that have been opened for a very long time and have a decent rating compared to your other cards. This needs to be done because 15% of a person’s credit score is usually determined by his or her credit history. If a credit history is longer, the credit score is much more likely to be higher.

If you follow these five easy steps, eventually you should see your credit score recover to what it once was.