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Have You Checked Your Credit Score Lately?

You may have not checked your credit score lately, but somebody probably has. When you apply for a credit card, a bank loan or a mortgage, lenders access your three-digit score to help determine the amount of money you can borrow and the interest you will owe on it.

The term “credit score” usually refers to your FICO score, a number based on a formula developed by the Fair Isaac Corporation. Fair Isaac looks at a summary of all your credit accounts and payment history. If you’ve got a mortgage, a major credit card (e.g., VISA, MasterCard), or a department store credit card, it will be included in the report, as will late or missed payments. FICO scores range from 300 to 850, and Fair Isaac calculates them for each of the three big credit-reporting agencies: Experian, TransUnion and Equifax. Generally speaking, the higher your score, the more money you can borrow and the less you’ll pay for the loan.

Ways to improve your score

For the best rates on a loan or credit card, your score should be at least 700. So how do you achieve that? Here are some quick tips on how to give your credit score a boost.

Pay your bills on time – The most important thing is pay your bills on time. Experts suggest setting up automatic bill payments or alerts through your bank or credit union to help get you better organized. On-time payments over a period of about six months can increase your score by as much as 50 points!

What’s YOUR score?

You can receive a free copy of your credit report once a year from each of the three major credit score agencies. Be sure to order it through annualcreditreport.com, the only authorized online site under federal law.

Pay down revolving debt – If your credit card balance is more than 35 percent of your credit limit, it’s probably dragging your score down. Paying balances down can help boost your score. Making one big extra payment can really help. If you get a tax refund, consider applying it in full to your credit card balance. Or if you get a windfall from, say, selling something on eBay or Craigslist, try putting the proceeds toward your balance.

A rule of thumb is not to charge anything that takes more time to pay for than it does to use. In fact, if you can eliminate credit card use for dinners, entertainment and impulse buys, it will be easier to rein in overall spending. By freeing your credit cards of non-essential purchases, you should have adequate credit available for essential items like appliances.

Pay your credit card bill early – Many people use their credit cards for everything from groceries and gas to utilities in order to get rewards. If this describes your situation, pay in full and pay early. If you charge $1,000 a month but pay your bill after you get your statement, it looks as though you are carrying a large balance when you’re not. Try making the payment five or six days before the statement closing date. This can make a big difference over time. It will be reported to the credit agency as a $0 balance.

Ask your credit card company to raise your limit – If you carry a credit card balance but have been making payments on time and make enough money to support a higher credit limit, a quick phone call to your credit card company could raise your score. A higher credit card limit will lower your credit utilization ratio (the amount of available credit you’re using). However, it’s important to be honest about whether this step would tempt you to rack up more debt.

Learn more and take action

  • Get a free copy of your credit score at annualcreditreport.com.
  • Find out how long it will take you to pay off your credit card balance by using the credit card repayment calculator at federalreserve.gov.

 

 

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