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Having a good credit score has many benefits above and beyond having the ability to qualify for loans or a mortgage. Having a good credit score can make the credit that you do obtain cost you less because lenders charge less interest for borrowers with good credit. Good credit is also needed to land the job that you have dreamed about, rent a nice apartment, and much, much more. Raising your credit score is almost like losing excess weight because it takes time to do it and there is no overnight miracle that can do it for you.
Cleaning Up Your Credit History
One of the things that potential lenders look at when they determine your creditworthiness is your past payment history. For this reason, it becomes important that you pay your bills on time. Any delinquent payments, missed payments, or collection activity that is reported on your credit report can impact your score negatively. If you have gotten behind, work to get your accounts current and keep them that way.
If you have accounts that are in collection, be aware upfront that paying off the account will not remove it from your report. In fact, it can remain there for up to seven years. For this reason, always work with any collection agency to have the item removed if you pay them - they will usually agree to this in order to negotiate a fast payment from you. And perhaps most importantly, if you are having trouble paying a particular account, work with the creditor as soon as possible to come up with an alternative payment arrangement rather than simply ignoring the problem.
Using Your Credit Wisely
Potential lenders also look at the amounts that you currently owe when they are deciding if you qualify for a loan with them. For this reason, keep your balances on your credit cards low (less than 30%). High amounts of outstanding debt, even though you are not behind or late on the payments, can impact you negatively with the credit bureaus. Contrary to popular belief, simply moving debt around by transferring the balance from one card to another will not raise your credit score. In fact, this will just leave you with an open account with a zero balance, which will be of no help at all. For these reasons, do not close unused credit card accounts or open new credit card accounts just in hopes of raising your credit score because these actions may actually lower your score.
The length of time that you have had credit is also important in the eyes of potential lenders. Opening a lot of new accounts in a rapid fashion does not help raise your score but has the opposite effect of lowering the average age of your open accounts, which can cause your credit score to decline. If you do choose to close accounts, always leave your oldest, most established accounts open.
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