Having a good credit score affects more than the interest rate you are eligible for when applying for a mortgage or other type of loan. Your credit score may be checked when you are applying for a job, renting an apartment and other aspects of your life. There are several things you can do to fix your credit score.
It may seem like a contradiction, but one way to correct your credit score problems is to use a credit card occasionally. By charging some purchases and paying the balance on time, you show your ability to pay your bills and over a number of months can increase your credit score. If using credit cards excessively was the cause of your low credit score, you need to get your spending under control before attempting this step. You are likely to get deeper into debt if you have not addressed your spending problem. Consider getting help from a financial professional if you are having difficulty getting your spending under control.
If you do have credit card debt, it will help your credit score by paying them off as fast as you can. Many people think they are doing alright financially if they are able to pay the minimum amounts due on their credit cards, but it barely covers the interest charges. By doing this, it will take several years and much more money than the original purchase to pay off your debts. Even though you charge purchases that seemed like a good deal after considering the additional interest charges, it will not end up being such a great deal. Paying off your credit cards typically helps improve your credit score more than paying off your installment loans.
You can improve your credit score by showing you are responsible with both revolving credit such as credit cards and installment loans such as personal loans, auto financing, mortgages and student loans. It is important to make your payments on time to show you are responsible with your finances. By having a good credit score, you are likely to receive better interest rates on loans which will save you money over the life of the loans.
If you do not have an installment loan, then it may be beneficial to take out a small loan so the payments show up on your credit history.
Even though one of the suggestions is to use credit cards, watch how much you charge each month. Part of your credit score is based on the ratio between how much credit you have available and how much your balances are. If you have a majority of your available credit charged, it will cause your credit score to drop.
It is important to check your credit report at least one time a year to make sure there are not any errors on it. Sometimes, there are entries that reported incorrectly that can cause your credit score to drop. Also, make sure the timely payments have been reported correctly.
There are steps you can take to improve your credit score to help you with your financial life.