In the past, your credit rating, also known as a credit score, was one of those murky secrets dependent upon arcane formulas. These days, many financial experts offer advice on how to obtain your credit reports, understand the information, interpret your score and raise your credit rating. Improving your credit score can help in numerous situations, helping you obtain optimal terms on loans and credit cards and even lowering the rates you pay for car or home insurance.
Procure your credit reports. The Fair Credit Reporting Act states that you have a right to a free copy of your credit report from Equifax, Experian and TransUnion every year. The credit report contains your residential history, your employment history, your bill paying history and some legal information. To get your free copy, visit the Annual Credit Report.com website.
Analyze the information on your credit reports. Look for errors that may affect your credit rating, such as the length of time at your current job and your lines of credit and amount of debt. If you find mistakes, contact Equifax, Experian or TransUnion directly. Check your ensuing credit report to ensure it incorporates any corrections.
Hit the big problems first. The most important factor affecting your credit score is your payment history, which composes 35 percent of your credit score. If you have accounts in arrears, address them immediately. Clean up your act by paying all bills on time.
Establish a budget to attack outstanding balances, which constitute 30 percent of how consumer agencies determine your credit score. Do not charge up to the limit on your lines of credit, as agencies like to see a significant amount of available credit on your record. Cover your minimum payments on all lines of credit and use any extra money to whittle away at your debt that has the highest interest rate.
Avoid opening and closing lines of credit. You should not cancel credit cards to raise your score, nor should you open up new credit accounts to make it appear that you have additional available credit. Both actions can make you appear more like a credit risk as opposed to a responsible consumer.
- Adopt a budgeting strategy of paying yourself first, covering all bills and debt before spending money on superfluous luxury items.
Nina Makofsky has been a professional writer for more than 20 years. She specializes in art, pop culture, education, travel and theater. She currently serves as a Mexican correspondent for "Aishti Magazine," covering everything from folk art to urban trends. She holds a Bachelor of Arts in English from Mills College.