Improving Credit Score

Understanding the importance of your credit score and how to keep it high can save you a lot of money in interest and could even help you get a job.

Despite the importance placed on credit scores in determining how much credit a lending institution can risk loaning you either directly or by giving you a credit card most Americans know little about them. This is quite alarming when you consider how important your credit rating, also known as a credit score, can be when you need to borrow money.

In addition to loan qualifications, credit scores are sometimes used as a factor in establishing your insurance rates. Studies have shown that people with higher credit ratings are more responsible, safer drivers and submit fewer insurance claims.

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The opposite can apply when you are seeking employment. Some employers review credit ratings when considering applicants. A low credit score could indicate that you are less responsible and more likely to be a poorly performing employee. Credit scores are also carefully scrutinized when someone is renting a house or apartment because people with higher scores not only make better neighbors; they pay their bills on time.

Your credit score is all about risk assessment and your ranking can influence your life in many ways. Having a high credit score can mean everything from paying lower interest rates to paying lower car insurance premiums to landing that dream job and there are steps you can take to improve your credit score.

Who keeps track of my credit rating?

There are three accepted, well known credit agencies: Equifax, Experian, and TransUnion. These companies create a personal report for your credit based on data received from businesses that provided credit to you. This data may include: all the types of credit you have, amounts owed, credit limits, your payment history and the length of your credit history.

Your individual credit score is assigned based on this report. Credit scores can range from the bottom at 300 to a perfect 850.

What your credit score is used for

Financial institutions use your credit score to assess the risk involved with lending you credit. Risk is less the higher your credit score. And the higher your score, the more likely you’ll receive the credit you’ve requested at the best interest rate available.

In order to receive the lowest interest rate available, consumers must have a credit score of at least 760. Relatively low rates are available to those with scores between 700 and 759.

Relatively high loan rates go to consumers with credit scores below 700. And if your credit score is really low, you may not be able to get credit at all.

In the United States, the median credit score is 723, but you can often get credit if your score is at least 620. If your score is less than 620, however, you could run into problems because 620 is a drawing line for creditors.

Credit scores are fluid. They can be lowered by the credit bureaus if you have late payments. And can be lifted by having or re-establishing a solid track record of on time payments.

By raising your credit score by just 30 points, the word on the street is that you could reduce credit card finance charges by as much as $76 each year.

Consumers can acquire one free copy of your credit report each year under the Fair and Accurate Credit Transactions Act. For more information and instructions on how to attain your free credit report, visit or call 877-322-8228. However, credit scores aren’t free and can only be obtained by paying a fee to the credit bureaus.

Most people with poor credit believe the fee is worth it because once you know your score; you can take the following actions to improve it, saving you more money in the long run:

  • Make payments by the due date. Just one late payment can lower your credit score. The longer you can demonstrate on time payments, the higher your credit score will be. As an example, someone with an average credit rating (from all three credit bureaus) of 707 can increase their score by as much as 20 points simply by paying all their bills by their due dates for just one month.
  • Force yourself to keep balances as low as possible on your credit cards. If you use all of the credit available to you and don’t pay down the balances, it can lower your credit score by as much as 70 points.
  • Only open credit card accounts for what you need. Whenever a new account is opened, it lowers the average of your account age, which can lower your credit score by 10 points.
  • Don’t shy away from credit. While it’s true that having credit cards and revolving credit causes credit scores to be higher, a person without credit cards is considered a higher risk than one who manages the cards they have reliably.
  • All accounts stay on your credit report. Just because you close an account doesn’t mean it’s removed from your credit report. It’s still there and will most likely be taken into account when determining your average credit score.
  • Request a copy of your credit report. Get one from each of the credit reporting companies. Look them over for unauthorized credit applications.
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