8 Tips to Boost Your Credit Score

A stellar credit score can potentially save you thousands of dollars in the long run. By qualifying you for lower interest rates, a higher score can translate to tens of thousands in savings over the life of a 30-year mortgage, for example. Even if you don’t need to qualify for a mortgage or car loan anytime soon, there are other money-saving advantages to sustaining a first-rate score. Insurance premiums, for instance, are partially based on credit history.

The best and most obvious way to maintain a top-notch credit score is to always pay bills on time. But there are additional steps you can take that will boost your score as well. These are simple things you can do yourself; there’s no need to pay a credit repair company. In fact, the Federal Trade Commission recommends avoiding companies that make grand claims about repairing your credit. Like many things in life, there is no quick fix. However, knowing the factors that affect your score and following some of these tips can improve your score relatively quickly.

Use Credit at Least Occasionally

In order of importance, the first factor affecting your credit score is payment history – it accounts for 35 percent of your score. If you have a credit card but never use it, paying cash for everything instead, you are not establishing your credit. It can be as simple as charging a grocery bill to your credit card every couple of months and then paying your balance off in full.

Check for Errors

You can request a free credit report annually from each of the three reporting agencies by logging on to www.annualcreditreport.com or calling 877-322-8228. Check your reports for errors and get them corrected so your payment history is accurate.

Don’t Max Out

While you should occasionally charge, don’t overdo it. The second factor affecting your credit is outstanding debt, which makes up 30 percent of your score. Related to that is your credit utilization ratio, the ratio of outstanding debt to available credit. Keep this ratio low. A general rule is not to use more than 25 percent of your available credit at any given time. This applies even if you pay off your card balance every month.

Open a New Account

If your credit needs improvement, opening a new account that you use only sporadically can help. Just make sure you use it for small purchases so your credit utilization ratio stays low, and pay the balance in full each month.

Don’t Cancel Old, Rarely Used Accounts

Keep them open so that your unused available credit amount is higher. Keeping old accounts open has an added benefit — length of credit history, the third factor affecting your credit, contributes 15 percent to your score.

Utilize a Variety of Credit Types

The fourth factor, and 10 percent of the score, relates to type(s) of credit. There is a hierarchy when it comes to types of credit. Installment loans, such as mortgages, are considered the highest quality. Next are credit cards such as Visa, MasterCard and American Express. Last are department store credit accounts such as Macy’s and Sears. Having a mix of these different types can improve your score.

Reconfigure Your Debt

If you’re carrying balances on both bank cards and store cards, pay off bank cards first since they are deemed more significant. And consider putting sizable credit card debt into a home equity loan, if possible. Owing $10,000 on a credit card will hurt your credit more than owing $10,000 on a home equity loan. Only do this, of course, if you can repay the loan, since  the equity in your home is decreased by the amount you owe on the loan.

Watch the Credit Applications

The fifth factor affecting credit is new credit inquiries, and it makes up another 10 percent of your score. Too many recent inquiries can hurt you. On the other hand, if inquiries are all made within a 30-day period, they may count as a single inquiry and not be as damaging.

A good credit score is worth the effort. Don’t throw your money away on interest payments.

Jessica Bosari writes for the money-saving blog Billeater.com. Visit the site for more money saving tips.