12 Steps to Building a Better Credit Score

1) Check Your Credit Files

The first step in building a better credit score should always be to ask for copies of your credit files from each of the major reference agencies, TransUnion, Experian, and Equifax.

Carefully check the information they contain, making sure it’s all correct, up to date, and actually applies to you. Even small mistakes can impact your credit rating, through no fault of your own, and you have the right to insist any errors are corrected.

2) Clear Up Minor Problems

When checking your credit files, you may come across minor problems from the past that could still be causing you difficulties. Sometimes, a creditor will not attempt to pursue a small debt, such as an unpaid catalog order or similar charge because it can be cheaper for them to simply write it off. However, this will still show up in your credit history as a default; damage to your rating. If you find any of small, easily overlooked debts, it’s worth paying them off and making sure that this is reflected in your file.

3) Spread Out Your Debts

If you have several revolving credit accounts, it is important that you spread your debt evenly across all accounts. Accounts which are close to their borrowing limits are a negative factor for your credit rating. Try and manage your finances so that no individual account has higher than a 30% credit  utilization.

Related: What is a Good Credit Score?

4) Raise Your Credit Limit

If you only have one or two accounts, and they’re close to their max limits, it can be worth asking that your credit limit is raised. This can lower your utilization rate which can benefit your overall score. However, be careful not to build up too large of a credit line. If you have access to a large credit line, new lenders may be reluctant to add to your chances of overextending yourself. 

5) Be Crafty With Your Payments

Another way of reducing your account limit utilization is to make your payments before their due date. Ideally, you should clear your balance in full each month, but realistically, for most people, this isn’t possible. However, it’s important to note that your account utilization figure is calculated across the whole month. Making your payments early will mean your balance is lower for longer, which gives your rating a small but worthwhile boost.

6) Use Caution When Applying For Credit

Each time you apply for credit it is recorded on your credit file, and each entry of this type has a small but relevant impact on your score. Submitting too many applications in a short amount of time gives the appearance that you’re desperate for credit, and this is a sign of risk for finance providers. Treat credit applications seriously, only applying for products you stand a chance of being approved for, to keep the damage to a minimum.

Related: What Is a Credit Card Cosigner And Should You Consider One?

7) Don’t Apply For Credit Too Often

Submitting too many credit applications is dangerous for another reason. If you’re approved several times in quick succession, you may suddenly have access to increased credit lines. As previously mentioned, having too much credit available can place you in a higher risk category, which can impact everything from mortgage applications to insurance quotes.

8) Close Unused Accounts

If you’ve stopped using an old credit card for any reason, the chances are the account is still open even if it never sees any transactions. However, the credit limits on these accounts may still count towards your total possible debt, so it makes sense to close most of these old, dormant accounts, to reduce your overall debt exposure.

9) Keep Oldest Account Alive

However, having a positive history that goes back many years is an important part of your credit rating’s calculation. Even though closing most of your dormant accounts is a good idea, it’s advisable to keep your oldest one open to benefit from its valuable history, so long as the account remains in good standing.

10) Build a Positive History

You can build positive credit history by using credit in a responsible way. Every time you make your monthly payments on-time, this information will be recorded as positive information in your credit file. Over time, continued positive information will increase your credit score. 

Related: 4 Basic Steps to Repairing Your Credit

11) Don’t Send Signals of Risk

If at all possible try and avoid using credit services such as payday loans or other short-term lending products. In general terms, these services are mainly used by people with some level of financial problems, and it’s best to keep such entries from your file as they’ll leave a poor impression with the more mainstream lenders.

12) Keep On Top Of Your Bills

Lastly, avoid adding negative entries to your credit file by making sure you manage finances responsibly. It’s an excellent idea to set up automatic payments whenever possible so that you never overlook one by accident. Minor hiccups such as making a payment a few days late can have a significant impact on your score, while timely payments will continually improve your credit rating.

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