Thursday, August 12, 2010

How To Improve Your Credit Score.

A healthy credit score is very important in todays world. As large banks tighten lending standards it is important to have your score as high as you possibly can.

Credit scores range from 300 to 850, the higher the number the better the rating. The score is formulated from payment history, amounts of money owed, length of your credit history, new credit accounts opened and how you have utilized your credit. While you can't buy a good score, you can build one over time by demonstrating that you are responsible.

To improve your credit score, consider starting with these steps.

1. Monitor your credit report on a regular basis for errors and identity theft. Errors happen! To get them corrected be sure to contact both the organization that provided the wrong information as well as the credit bureau. When identity theft happens it is your responsibility to identify and address it! That is why monitoring your credit score is important. If you wait till you are making a purchase only to then find out a person has been using your information it will probably be to late.

2. Don't open other new credit lines when applying for a home loan. This one is huge in todays environment. You may want the new car or living room set but the home buying process is not the time to open new accounts. This is an easy way to temporarily reduce your credit score and screw up your mortgage. If you do this before finalizing your mortgage, you many find yourself stuck with a higher interest rate or not even qualifying for the loan.

3. Pay down credit cards. Carrying high balances on credit cards has a negative effect on your credit score. Think of it this way. If you have a grand total of $50,000 worth of credit limits available, but you owe $25,000 on all of your cards put together, you are using half of your available credit!

4. Pay your bills on time. Seems simple enough but in hard economic times more and more people are finding themselves with the decision of what bill to pay with the money they have. If you find yourself having a hard time paying bills, talk with the lender or company you owe. They may have programs or suggestions that will help you avoid having your bill sent to collections.

5. Don't let items go to collections. If an item is sent to collections your credit report will suffer. This ding will stay on your report for up to seven years.

The best loans and mortgages are available to borrowers with FICO scores 700 and above. Yet the average credit score in this country is 693. That means on average people are having to pay more than necessary for credit.

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