Better Business Bureau serving Ashland, Medina, Portage, Richland, Summit & Wayne Counties offers tips to improve credit scores: Understand how credit scores work.
Credit scores and credit reports help lenders measure financial risk when consumers are applying for credit cards, credit lines, and loans. Higher scores equate to higher "credit worthiness," according to Bankrate.com
. Credit scores may be affected by credit history, types of credit, payment history, debts on credit lines, and new credit accounts in a period of time.
- Pay bills on time. On average, more than one-third of the credit score is based on payment history. Bills that end up going to a collection agency can drop a credit score as much as 100 points. Consider activating an automatic electronic payment schedule with the bank so payments won't be late. Pay credit cards before they're due. Promptly pay traffic or parking tickets and library fines. Keep payment records.
- Keep credit card balances low. Generally, another one-third of the credit score is based on the amounts owed; often expressed as a "credit utilization ratio," it is the percentage of the credit limit used. Keep purchases down to less than 25 percent of the credit limit at any time, even if the bill is paid off in full every month.
- Limit the number of credit cards, including retail store cards. Typically, the length of credit history accounts for 15 percent of the credit score. Opening several new cards within a short period of time can hurt the score by lowering the average age of open accounts. Lenders worry about those who borrow more money than they can repay.
Check credit reports annually to detect fraud and fix potential errors. Using www.annualcreditreport.com, consumers can request their free credit report annually through the three main credit reporting agencies: Equifax, Experian, and TransUnion. This free report shows credit transactions, but doesn't show the actual credit score unless consumers pay a fee for a full report or sign up for services.
Utilize BBB's Managing Credit - Made Simpler. This free online program walks consumers through steps to better manage credit, regardless of financial situations. Visit www.bbb.org/credit-management.