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A credit score is a three-digit number that represents the creditworthiness of an individual based on factors from their financial history. Credit scores, whether low or higher, can have a big impact on your life.
Credit scores are a measure of financial trust and are used by lenders to determine things such as whether you qualify for a loan, the interest rate you will be charged, and the maximum amount you may be loaned. The higher your score, the more financial options will generally be available to you.
It pays to work toward a high credit score, and not just when it comes to loans. You may also be more desirable to potential employers, landlords, and other organizations who view good credit as a sign of dependability.
Here are some steps you can take to improve your credit score.
Always pay your bills on time.
This is the most important thing you can do to increase your credit score. Even one late payment can have a negative impact.
Pay at least the minimum due.
Payment history makes up a large part of your credit score, so when you pay your bills, make sure you’re paying at least the minimum amount due.
Don’t use up all your credit.
People who use less of their available credit are considered lower risk and may receive a higher score. A general rule of thumb is to only use 30% or less of your available credit.
Pay off your credit card balance.
Paying off your credit card balance lowers the total amount of money you owe, which is a big part of your credit score.
Put due dates on your calendar.
Try putting the due date of each of your bills on your calendar. This will help you avoid missed payments, which may lower your credit score.
Set up automatic payments.
Automatic payments are a bill-pay option that automatically pulls funds directly from your bank account when a bill is due. Be sure you have enough money in your account to avoid overdraft and bounced check fees.
Build your credit history.
A person with a longer credit history is considered less of a risk than someone who recently began using credit.
Next steps
Understanding how credit scores and reports work may help you achieve financial goals such as buying a home, leasing a car, or paying off debt. Explore a short lesson on how credit is measured and the impact it can have on your financial goals.