Your credit score holds a lot of power over your life, but many people lack an understanding of their own credit score (and how to improve it), and not knowing the truth or believing some of the myths out there can significantly impact every part of your financial life. A credit score is a number that tells creditors how likely you are to pay back a debt, so the higher your score, the easier it is to borrow money.
Check Your Credit Score
The most important first step to improving your credit is knowing exactly what your score is today. Scores can range from 300 to 850, and generally fall into the following categories:
- Exceptional: 800 to 850
- Very Good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Poor: below 580
There is a common myth that checking your credit score will actually hurt your score, but that is not the case. Everyone has access to a free annual credit report from each of the three main credit bureaus and you should check it every year so you can spot incorrect information that could be hurting your score and get it corrected. It’s also important to know that you have several credit scores, and the exact number can vary day to day, or depending on where it comes from and how it’s calculated.
Improving Your Score
If you do find out that your score is low, there are some steps you can and should take immediately to improve it, including:
- Pay monthly installment loans (student loans, car loans, mortgage, etc.) on time every month
- Don’t open new credit accounts unless absolutely necessary
- Pay off high credit card balances as quickly as possible
- Regularly monitor your credit reports and dispute incorrect information
- Keep your credit balance low, or pay it off every month in full if possible
Don’t Be Fooled by Credit Fix Companies
There are some companies who claim they can immediately fix your credit (for a fee, of course), but to fix your credit you need to practice good financial habits like those listed above, and over time your credit will improve. The only way to immediately improve your credit score is to remove inaccurate negative information, but you can do that for free and don’t need to pay a credit repair company.
Improving your credit score is not something you can do overnight, but it is worth it to be able to borrow money at lower interest rates and take out loans for the important things in your life, such as vehicles, a home, and an education.