Tips to raise your credit score
A better credit score can help you get a better loan rate.
Your credit rating can help determine whether you get a loan and what interest rate you pay, so getting your score as high as possible can save you big bucks.
The difference in interest rates for mortgage loans is nothing to sneeze at. Someone with a FICO score, or credit rating, of 760 to 850 could pay $188 less per month on a $216,000 30-year fixed-rate mortgage than someone with a score of under 658, according to MyFICO.com. The amounts are based on interest rates of 5.99 percent for the higher rating and 7.31 percent for the lower rating.
Credit scores are grouped into five basic categories, according to MyFICO.com. In general, about 35 percent of the score is based on your payment history, about 30 percent on how much you owe, 15 percent on the length of your credit history, 10 percent on new credit and 10 percent on types of credit used. The mix can vary depending on your situation.
Credit ratings evolve over years, but there are ways to raise your credit score a few points at a time.
Pay your bills on time.
"I'm not sure a lot of people understand that," said Jack Guttentag, professor of finance emeritus at the Wharton School at the University of Pennsylvania and the man behind The Mortgage Professor Web site (mtgprofessor.com). "They always say, 'I always pay it eventually.' "
Pay more than the minimum on your credit cards every month.
Your score could go up a few points as your credit card balances go down. Just a few larger payments can help if you previously were paying the minimum.
Limit the number of new credit-card accounts you open.
An exception is for people who are trying to re-establish credit after a bankruptcy or other financial crisis, according to MyFICO.com. "Opening new accounts responsibly and paying them off on time will raise your score in the long term," says the Web site, which is published by Fair Isaac, the company that invented the FICO score.
Keep your balance well below the credit limit on revolving accounts like credit cards.
Your credit score will likely be higher if you have small balances on four or five credit cards (as an example) than larger balances on two or three cards, especially if the balances are close to the credit limits, Guttentag said.
Pay off any uncollected items.
Your credit score is being hurt if you're withholding payment because of a dispute with the lender, no matter how "right" you are.
And finally, always remember that paying down your revolving credit, or credit cards, is the best way to improve the portion of your credit score that looks at how much you owe.
