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How to Improve Your Credit Score

Improving your credit score is one of the most important things you can do to improve your financial health. Simply put, the higher your credit score, the lower your interest rates will be, which can save you hundreds, if not thousands of dollars over your lifetime. Below we have listed things you can do  — and things NOT to do — to help improve your credit score.

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Things to do to improve your credit score

1. Monitor your credit report and score. The first step of improving your credit is knowing your credit report and score. Monitor your credit report on a monthly basis to identify any inaccuracies that should be disputed with the three major credit bureaus. Did you know that over 70% of credit reports have erroneous information that may negatively impact your credit score?

2. Pay every account on time. This should be obvious but it never hurts to reiterate. You need to pay your bills on time. Did you know that payment history is one of the most important factors that affect your credit score? Over 30% of your credit score is determined by the on-time payment history.

3. Pay off collections. If possible, negotiate to remove those from your credit report entirely, and make sure that you get it in writing. Paying in full is the next best option, even if you can’t get them to remove the actual line item; a paid collection is treated more favorably than an open collection account.

4. Keep your credit card balances low. Credit scoring models do not look favorably on balances that are approaching your credit limit. The best strategy for credit cards is to only charge what you can afford to comfortably pay off in full at the end of each month. The next best strategy is to keep your balances as low as possible; you will achieve a significantly higher credit score if you can keep your credit card balance below 10% of your credit limit.


Pay your highest interest debt first. If you have multiple trade lines, you can super-charge your debt reduction strategy by making additional payments on your highest interest debt first. With less to pay toward interest, you’ll have more to go to principal.

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Things that have a negative impact on your credit score

1. Don’t close old credit cards. Many people think they can improve their credit score by closing unused credit cards, but this is not necessarily the case. Open credit cards with zero balances actually help your credit score by lowering your overall credit utilization ratio —the total balance versus the total credit limit. All credit scoring models look at your outstanding credit card balances in relation to your credit limits.

2. Don’t open new accounts. In the long run, more credit can help your score, but opening too many new accounts in a short period of time can work against your score. If you are planning on financing a major purchase like a house or a car, avoid applying for and opening new credit unless it’s absolutely necessary.

3. Don’t shop around for consumer credit. When you apply for credit, the lender will pull your credit report and when they do, you get what’s called an inquiry. Numerous inquiries in a short period of time can hurt your score. Luckily, this does not apply to shopping around for a mortgage, auto or student loan, which is always smart to do; most credit scoring models group multiple inquiries for mortgage, auto and student loans as one inquiry, as long as they occur within a short period of time.

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Category: Credit

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