A credit score is an estimate of credit risk, which is based on a consumerâ€™s credit report. It has a major impact as it dictates what consumers can buy, how much credit they can obtain and even where they choose to reside. Lenders use this number to determine how likely applicants will be to repay a loan or line of credit in a timely manner. The higher the score, the better interest rate theyâ€™ll receive.
Take Charge America, a national non-profit credit counseling and debt management agency has the following 5 tips for managing a credit score and maintaining a positive credit history:
Donâ€™t Miss Credit Card Payment Due Dates
Credit card companies set deadlines in stone. Missing just one payment â€“ even by a day or two â€“ can negatively impact your credit score. On the flip side, a history of on-time payments can help improve your credit score.
Pay More than the Minimum Amount Due
Submitting minimum payments can be a very slow way to pick away at your credit card debt. Bigger payments can make a big impact on your total debt level, plus they can help raise that score.
Donâ€™t Apply for New Credit
If you are trying to improve your credit, applying for new credit could not only lower your score, but youâ€™re more likely to get higher interest rates on the loan or line of credit.
Donâ€™t Close Old Credit Card Accounts
Closing a credit card can lower your credit score â€“ especially if itâ€™s been open for more than three years â€“ because it reduces your credit-to-debt ratio, a major factor credit bureaus use to determine your score. If you want to remove the temptation to spend, consider cutting or storing the card while keeping the account open.
Decrease the Total Amount of Debt Owed
Paying down your total debt, including credit cards and other personal loans, is among the fastest ways to improve your credit score.
Check your credit reports at least once a year. A free credit report can be obtained annually from each of three credit bureaus at annualcreditreport.com. A credit score can also be obtained for a small fee. Itâ€™s common for the score to vary slightly with each bureau.