5 Ways to Build Your Credit Score

Need to boost your credit score before purchasing your new home? Remember that credit scores take into account years of past behavior, not just your present actions. In addition to making the right moves, you also have to be consistent. A few easy steps can push your score in the right direction.

  1. Watch your credit card balances.

One of the major factors in your credit score is how much revolving credit you have versus how much you’re actually using. The smaller that percentage is, the better it is for your credit rating. To boost your score, “pay down your balances, and keep those balances low,” says Pamela Banks, senior policy counsel for Consumers Union. Know that even if you pay balances in full every month, you could still have a higher utilization ratio than you’d expect. That’s because some issuers use the balance on your statement as the one they report to the credit bureau. Even if you’re paying balances in full every month, your monthly balances will factor into your credit score.

  1. Eliminate ‘nuisance balances’.

Those are the small balances you have on a number of credit cards. This works because one of the items your score considers is just how many of your cards have balances. So, charging $50 on one card and $30 on another, instead of using the same card (preferably one with a good interest rate), can hurt your score. The solution to improve your credit score is to gather up all those credit cards on which you have small balances and pay them off. Then select one or two go-to cards that you can use for everything.

  1. Leave (good) old debt on your report.

Some people erroneously believe that old debt on their credit report is bad. The minute they get their home or car paid off, they try to get it removed from their credit report. While negative items are bad for your score, most of them will disappear from your report after seven years. But good debt – debt that you’ve handled well and paid as agreed – is good for your credit. The longer your history of good debt, the better it is for your score. To improve your credit score, leave old debt and good accounts on as long as possible. This is also a good reason not to close old accounts where you’ve had a solid repayment record.

  1. Use your calendar.

If you’re shopping for a home, car or student loan, it pays to do your rate shopping within a short time span. Every time you apply for credit, it can cause a small dip in your score that lasts a year. That’s because if someone is making multiple applications for credit, it usually means he or she wants to use more credit. However, with three kinds of loans – mortgage, auto and student loans – scoring formulas allow for the fact that you’ll make multiple applications but take out only one loan. The FICO score, commonly used by lenders, ignores any such inquiries made in the 30 days prior to scoring. If it finds some that are older than 30 days, it will count those made within a typical shopping period as just one inquiry. The length of that shopping period depends on the credit score used. If lenders are using the newest forms of scoring software, then you have 45 days. With older forms, you need to keep it to 14 days.

  1. Always pay bills on time.

If you’re planning a big purchase (like a home or a car), you might be concentrating on assembling a big chunk of cash. But keep in mind that one of the biggest ingredients in a good credit score is simply month after month on-time payments. If you’re juggling bills, you may be tempted to send payments in late. Don’t do it! “Credit scores are determined by what’s in your credit report,” says Linda Sherry, director of national priorities for Consumer Action. If you’re bad about paying your bills – or paying them on time – it damages your credit and hurts your score, she says. So even if you’re sitting on healthy savings, a drop in your score could scuttle that dream. Saving money for a big purchase is smart. Just don’t slight the regular bills to do it.

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