What you don’t know can hurt you! Especially your credit score.

Given the recent credit crisis, many lenders have now raised the bar when it comes to qualifying for loans so it is now more important than ever to have a high credit score. Your credit score can be pulled by banks when you apply for a mortgage loan, a credit card, a private student loan, or even by a potential employer. While a high score can help you take advantage of low interest rates and save you hundreds or even thousands in interest, a low score can make many areas of your financial life quite complicated.

Tips to improve your credit score

  1. Keep credit card balances under 30% of your total available balance. This means that if you have a credit card with an available balance of $10,000, you shouldn’t charge more than $3,000. Racking up big balances can hurt your score even if you pay the balance in full each month. This is because your credit score reflects whatever balance you were carrying as of your last statement when your information was reported to the credit bureaus.

  2. Limit your number of credit applications. New credit inquires stay on your credit report for two years so it is important to limit the number of times your credit is pulled within that timeframe. However, it doesn’t hurt your score if you check it yourself.

  3. Don’t close old credit card accounts. While most people think that it is a good idea to close old or unused accounts, it can actually lower your credit score. There are 2 reasons that closing an old account can have a negative impact:
    • One reason is that it affects the amount of your available credit
    • The second reason is that it can affect the length of your credit history especially if the account you close is one that you’ve had open for many years.

  4. Use old credit cards once in awhile. It is important to “dust off” old credit cards once in awhile and use them to make a small purchase. If you go a long period without using a card then the lender may stop reporting your information to the credit bureaus. This can impact your credit history, and you will also appear to have a lower available credit balance.

  5. Check your credit report for errors. Request a free copy of your credit report annually from each of the three major credit bureaus: Experian, Equifax and TransUnion. You can do this by going to www.annualcreditreport.com. Dispute any errors you may find with the credit bureaus who should investigate the issue within 30 days.

Keep in mind that this report will not include your actual credit score. After you receive your free credit report, you can request your credit score from each bureau using the same website (www.annualcreditreport.com). They will charge you a small fee to send your score.

Credit scores range from 300 to 850. Most lenders consider a score of 750 or above to be excellent and that score should qualify you for the best interest rates and terms.

If your score is less than excellent, don’t worry. It is not set in stone. Following the tips above should help you to raise your score and reach your goals.

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