Few financial figures are as important as a credit score. The
three-digit figure has a major impact on daily life -- dictating what
consumers can buy, how much credit they can obtain and even where they
choose to reside.
A credit score is an estimate of credit risk, which is based on a consumer's credit report. Lenders use this number to determine how
likely applicants will be to repay a loan or line of credit in a timely
manner.The higher the score, the better interest rate they'll receive.
"Credit scores matter whether your credit history is pristine, new
or needs some work," said Mike Sullivan, chief education officer for
Take Charge America, a national non-profit
credit counseling and debt management agency.
"Improving your score requires a regular effort. You need to continually
be mindful of your purchases and your payments."
Sullivan offers five do's and don'ts for managing a credit score
and maintaining a positive credit history:
Don't Miss Credit Card Payment Due Dates -- Credit card
companies set deadlines in stone. Missing just one payment -- even by a
day or two -- can negatively impact your credit score. On the flip
side, a history of on-time payments can help improve your credit score.
Do Pay More than the Minimum Amount Due -- Submitting minimum
payments can be a very slow way to pick away at your credit card debt.
Bigger payments can make a big impact on your total debt level, plus
they can help raise that score.
Don't Apply for New Credit -- If you are trying to improve your
credit, applying for new credit could not only lower your score, but
you're more likely to get higher interest rates on the loan or line of
credit.
Do Decrease the Total Amount of Debt Owed -- Paying down your
total debt, including credit cards and other personal loans, is among
the fastest ways to improve your credit score.
Don't Close Old Credit Card Accounts -- Closing a credit card
can lower your credit score -- especially if it's been open for more
than three years -- because it reduces your credit-to-debt ratio, a
major factor credit bureaus use to determine your score. If you want
to remove the temptation to spend, consider cutting or storing the
card while keeping the account open.
To keep tabs on credit history and ensure the data is correct,
Sullivan recommends consumers check their credit reports at least once a
year. A free credit report can be obtained annually from each of three
credit bureaus at www.annualcreditreport.com.
A credit score can also be obtained for a small fee. It's common for the
score to vary slightly with each bureau.
For more financial tips, visit Take
Charge America.
