The Seven Best Tips to Improve Your Credit Score

I came across a great article that outlines information and tips to improve your credit score and ways to avoid common credit pitfalls. Having a low credit score (or FICO score) will hurt you every time when you go to apply for a credit card or for a loan of any kind. It’s plain and simple - if your credit score is low, you will be paying higher rates of interest. So it’s important to gain any knowledge you can to get your credit score in the best shape possible. I’ll summarize and share the 7 best tips and high points with you:

1. Late Payments (The number one and most costly credit mistake of all!)

Always make your payments on time. If you are late on an obligation that reports to the credit bureaus, your score will drop about 75 to 100 points. Timely payments account for 35% of your overall FICO score. This particular factor in your credit score is the biggest factor of all.

2. Balance Owed

If you have credit card debt, and the balanced owed vs. the allowed credit limit is more than 30%, your score is affected. The amount owed accounts for 30% of your overall FICO score. You should keep your credit debt well below 30% of the allowed credit limit.

3. Length of Credit History

Once you are granted some credit, the FICO score model looks at how long you have been in good standing with your credit. If you have a good history with your creditors, you can count on it helping your overall credit health. The length of your credit history accounts for 15% of your score.

4. Mix of Credit

By “mix of credit” we mean combination of credit cards, installment loans, auto loans, department store credit, etc. Mix of credit accounts for 10% of your FICO score according to Fair Isaac so you need at least 3 or 4 lines of different types of credit to get the best overall score.

5. New Credit

New credit accounts for 10% of your FICO score. The FICO score model does not like to see you applying for too much credit. Too many hard credit inquiries will affect your credit score. Be prudent and research and compare credit card offers before applying.

6. Identity Theft and Credit Monitoring

Make sure you are pulling a copy of your free credit report regularly. With the identity theft problem it is recommended to set up some type of credit monitoring with immediate alerts. So if something happens you will know about it quickly.

7. Co-Signing (just say 'no')

Co-signing is a big problem as well. We don’t recommend co-signing for anyone. If a family member or friend does not have the credit to buy, the best thing they can do to get credit established is to get a couple of secured credit cards. This is the fastest way to improved credit health. With a little history, usually 12 months of good payment history - the creditors will open the doors of credit.