Managing Your Credit Score
Anyone with a credit history has two credit scores calculated independently by each major credit reporting agency-Experian and Transunion. Your score tells the lender what they can expect from you if they loan you money. Will you pay them back on time? Do you tend to max out your credit? Are you likely to run out and apply for credit after they loan you money?
Keep in mind that it’s not just prospective lenders that use credit scores. Increasingly, insurance companies are using credit scores as one predictor, not only of on-time payments, but also of an individual’s overall financial behavior that increases their level of risk. Financial institutions and employers are also checking credit scores to screen out applicants.
Though the formula to generate credit scores is complex and hasn’t been disclosed to the general public, here are some rules to follow to help improve your scores.
Get your credit score once a year. A credit score is a three-digit number that reflects the credit history detailed by a person’s credit report. Every year, you should retrieve your credit score from one or both credit bureaus.
Lock up cards; don’t cancel them. Do whatever it takes to limit your use of credit cards, but don’t cancel credit card accounts once they’re paid off. Why? Because your credit score relies on the number of credit lines you have open and in good standing and the length of time they’re open. Lenders want to see a long record of credit management, and longtime accounts you haven’t touched in years may actually help your score by showing you have some restraint. Remember to use them once a year and pay the full amount off immediately to keep credit cards active.
Pay on time. Nothing damages your credit standing faster than late payments, particularly on big loans like home loans and car payments. It’s extremely important to get current and pay on or before the due date. Electronic payments/debit orders give you the ability to better manage payment dates.