Financial Tip of the Week: Improve Your Credit Score
Just like a top football, basketball or hockey player is drafted based on their stats, your credit score is used to determine your financial fitness.
Your credit score is the best way to define your ability to handle debt. It's based on several aspects of your financial picture and can help creditors determine if you're responsible with your money.
Improving your credit is one of the easiest ways to improve your overall financial scorecard. Doing so may help you get approved for loans and lower your interest rates and insurance premiums.
The following steps can help you improve your credit score:
Pay on time. Payment history is one of the most important factors used to calculate your credit score, so consistently paying on time is one of the easiest ways to boost your score. To help you pay on time, consider enrolling in an e-bill pay program that will make payments automatically on your behalf and guarantee they arrive on time.
Reduce debt-to-credit ratio. Focus on paying down the amount you owe on your credit cards so each one has an available credit of at least 50 percent. Doing so improves your debt-to-credit ratio and in turn will improve your credit score.
Use more than one type of credit. Your score is built around both revolving (ex. credit card) and installment (ex. mortgage loan) credit. Having both types in your credit history shows you can responsibly handle multiple kinds of credit, and in turn may improve your score.
Stick with the accounts you have. Opening new accounts means new inquiries on your credit report, which may lower your score. On the other hand, avoid closing accounts you already have, even if you don't use them that often. Doing so can negatively impact your debt-to-credit ratio and credit history – both of which are used to calculate your score.
Source: BMO Harris Bank