How Do I Get Better Credit?

There’s no doubt that your credit score can be a confusing thing.  According to a recent study conducted by Opinion Research Co., only 27% of Americans really understand their credit score and the fact that it measures, basically, how risky you are.  In today’s society, having a good credit score will get you through the right doors as well as all the rock bottom interest rates.  It definitely pays to know about credit, and how it works.

Credit is really just a term for how responsible you are with other people’s money.  Your score, anywhere from 300-850, is a measurement of just how trustworthy you are.  The higher your rate on the scale, the better off you are.  Simple concept, right?

It can be a bit hard to know what’s good and what isn’t with such a wide range, however.  The average American’s score is right around 723.  Generally, you want to stay in the 700’s at least.  Anything higher than 770 and you’re considered A+.  If you want money for something, chances are it’ll be handed to you on a silver platter if you have an upper-echelon score like this.

If your score is in the 600’s, then you’re going to have a harder time obtaining money.  You will probably have to pay higher interest rates, and jump through more hoops than someone with a higher score.  If your score is lower than in the 600’s, you may not be able to borrow money at all.

The good news, however, is that the power to raise your score is entirely in your hands.  It won’t happen overnight, but it can definitely be done.

The best, most effective thing you can do to make sure your score starts to rise is to start paying your bills on time.  If you can pay them off in full every month, even better.  Payment history is a huge part of your credit score, so making every effort to pay on time will go a long way towards raising your score.

Another thing you can do is to keep your balances low.  Maxing out all your cards can lower your score up to 70 points.  Yikes!  Pay off as much as you can every month and keep your floating debt low.  This can increase your score since creditors see that you won’t go hog wild with their money.

Also, don’t make the mistake of applying for every credit card you see.  This tip is a bit tricky, however.  The more credit you have available to you to use (but you DON’T use it) heightens your score.  Taking out a gazillion cards over a 4-month period, however, will LOWER your score.

Confused?  Yeah, it’s not easy.  Here’s an example.

If you have three credit cards that all have limits of $7,000 each, you have a total credit line of $21,000.  That’s a lot of money to have access to!  If you don’t use it, or only use a minimal amount of that every month, then your creditors are going to think, “Oh, they COULD be spending all this money, but they’re not.  They must be responsible!”  As a result, you get a high score.

Now, it’s obvious from the above example that having a high credit line (but not using it) is a good thing.  It’s NOT good, however, to apply for six cards in six months in order to raise your credit line.  This can backfire!  Opening all these new cards lowers the average age of all your accounts, which is not a good thing.  You want to have credit cards open for a long time, even if you’re not using them.  If you do need some more cards, take care to space out your applications over time so it doesn’t lower your score.

Another big factor in your score is how much debt you have in relation to how much credit you have.  If you have a total credit card debt amounting to $5,000, but your total credit line available is $15,000, then you’re in good shape.  Keeping your debt below 50% of your available credit is a good way to raise your score.  If, however, your credit card debt climbs over $7,500, then you’re going to get into trouble. 

As you can see there are many different factors that come into play to determine your credit score.  It’s important to realize that your score, be it high or low, can be changed by YOU.  You can make it better if you understand how the system works.