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The importance of your credit score can't be overstated, as it's one of the single most essential financial metrics in your life. Landlords, loan providers, potential employers, insurers, and almost everyone else you hope to do business with all review your credit record. A good credit score can open doors for you, while a low one can make life a lot more difficult.
The good news is, if you aren't happy with your current credit score, it's not set in stone. There are ways to improve your score so you can get a broader choice of loan options and more easily find businesses that want to work with you.
Personal finance expert Suze Orman has suggested some tips for improving your score. Here's some of her advice.
Make all your payments on time
First and foremost, Orman stresses the importance of always paying bills on time. As she points out, this factor is the single most important one that credit reporting agencies use to determine your credit score. "You have zero excuse for not nailing this," Orman says on her blog.
That's especially true since virtually every credit card company allows you to set up automatic payments. If you sign up to have at least the minimum payment taken directly from your bank account each month, you won't have to worry about forgetting a payment and doing serious damage to your score because of it.
Spend less on your credit cards
Orman's next big tip is to use your credit cards less. She suggests that you just charge a few items each month and then repay your full balance.
However, while Orman is right that keeping your credit utilization (the amount of credit used versus how much you have available) below 30% is an important factor in improving your score, her advice in this case could mean limiting the potential rewards you earn. If you can budget responsibly and make sure you have enough money to repay your bills in full without paying interest, there's little reason not to charge everything you can and just pay down the debt right away after earning the maximum rewards possible based on your spending.
Orman advises avoiding store cards to help improve your credit score as well, both because store cards have very high interest rates and because opening up a new card at the register can result in a new inquiry on your credit report. Too many inquiries will reduce your credit score. This is generally good advice, as store cards also tend to come with inferior rewards programs compared with other card options.
Keep an eye on your credit report
Finally, Orman urges checking your credit report regularly. Doing so enables you to catch errors that could hurt your score early on so you can minimize any damage they cause. It can also help you identify how your borrowing and repayment behavior is affecting your credit score. It's especially important to keep tabs on your credit record as you work to improve your score.
Normally, you can request one free copy of your credit report from each of the three major bureaus per year. However, during the pandemic, the bureaus have made weekly credit reports free to everyone.
Don’t forget about paying down your debt
While this is all good advice, Orman doesn't put much emphasis on paying down your existing debt balances in these tips, which could be crucial if your score is currently being damaged by a high credit utilization ratio. It may also be possible to raise your score by asking creditors to remove negative information.
Still, following Orman's tips can go a long way toward improving your credit history, and it's worth listening to her advice if you're hoping for a score boost that will help your overall financial situation.
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