Improving your credit score does require some patience and perseverance -- a significant increase can take 12 months or more, according to experts. But it’s worth the effort. A jump of even 100 points can translate into thousands of dollars in interest saved on a loan or mortgage. If you applied for a 30-year mortgage loan for $200,000, for example, the difference between a FICO score of 650, which is considered good, and one of 750, which is great, could be nearly $34,000 in savings, thanks to the lower interest rate the higher score could get you. FICO scores can range up to 850, though one of 760 or more will often qualify you for the best rates. If your FICO falls short, try these 6 steps to get a stronger score.
Automate your bill payments.
Setting up automatic monthly payments can help ensure you won’t miss or delay a payment, which can cost you -- both in additional interest you may owe and in credit score points. Even one 60-90 day late payment can hurt your score, says Jean Chatzky, a financial journalist and author of “Pay It Down!”. If you know that you are going to be late because of an unusual circumstance, such as an unexpected illness or job loss, call your issuer and let them know in advance. They might even give you a grace period.
Keep your debt utilization ratio low.
Your debt utilization ratio is the amount of debt you have divided by the amount of available credit. So if you have two different credit cards, say, with a $5,000 limit (or $10,000 total) and you owe a combined $4,000 between the two, you are using 40 percent of your available credit. That’s too high, says Bill Hardekopf, the CEO of LowCards.com, a credit card information website. “Your debt utilization ratio should be no higher than 30 percent,” he says. “But lower is even better.” (That applies to individual credit cards as well as your total debt to available credit ratio.)
Space out your credit applications.
Applying for several credit cards at the same time results in multiple credit inquiries in a short period and can raise a red flag among credit scoring companies, says Hardekopf. “Don’t apply for ten cards, hoping that you will get one or two,” he warns. “This will signal that you are in some type of financial difficulty.” If you need additional credit, consider calling an existing card issuer first to see if you can increase your credit limit.
Keep reading for three more tips.