Lately I’ve received a few questions from several of you wondering about how to increase your credit score. We talk so much about paying down debt, building a savings and paying cash (or using debit cards) for most of our spending that you’re wondering how that affects your credit score.  I put together a few top tips on understanding what your credit score is, how to access it and ways to improve it.

First – Check Your Score and Report

Experian, Equifax and Transunion are three places that offer one free credit report each year.  What I would recommend is setting an alert on your calendar (I use Google calendar) to remind you every four months to print out a new report.  That way you’re checking it multiple times a year and it’s not costing you anything. 

You can also signup for a free service like Credit Karma to keep an eye out for any suspicious activity and to get an idea of your credit score.

Second – Know The Main Factors To Your Credit Score

Payment History – Make sure you’re making your payments and that they are on time

Amounts Owed – Your total balances on your accounts make a big difference for your score. The amount you have available is weighted pretty high.  For instance, you have a credit card with a $10,000 limit, but carry a $9,000 balance.  That will hurt you more than carrying the same card with only a $2,000 balance.

Length of Credit History – Another portion of your credit score is made up of how long your accounts have been opened and how long it has been since you last used the account.

Types of Credit Used – Are your accounts installment or revolving?  This will be taken into consideration.  

New Credit – The last piece to your credit score is if you’ve tried to open any new accounts – credit cards, loans, or others recently.

Third – Take Steps To Increase Your Credit Score

If you’re wanting to improve your credit score then you can do a few simple things now that can have a big impact in the future.  These are just a few tips:

• Pay your bills on time.  You could setup auto pay for your bills to make sure payment is sent on time and to avoid any late fees.
• If you’re running behind on any bills – get up-to-date.  If you’ve missed a payment or two and are behind then you need to work hard to get caught up.  The longer you pay your bills on time AFTER you’ve been late then the more your score will increase. 
• Collection debts stay on your report for seven years, so avoid having any bill go to collections.  Even if you’ve paid the debt off in full, it will stay on your report for seven years.
• Keep balances low and pay off each month
• If you’re wanting to raise your score for the short-term then don’t close any paid off cards.  If you’re looking more for long-term reasons then closing an account may not be a bad thing, but in the short term it could hurt.
• Don’t open too many accounts at one time.