How do You Improve Your Credit Rating?

Matt Brady

There are many ways to improve your credit rating, and employing them all may be the best way to maintain the highest possible score. The general maxim is the less debt you have, the better the rating, but it's quite plausible to carry loans and debt on your credit card while maintaining a very good credit score. So long as your debt isn't too great, and you're never late on payments, you should be able to improve your credit rating, or at least maintain the good one you already have.

Making timely payments on bills can improve a person's credit rating.
Making timely payments on bills can improve a person's credit rating.

Although debt is the loathsome killer of credit scores, it doesn't have to be the enemy. In fact, you actually need a bit of debt to improve your credit rating. Knowing what kind of debt you should carry, and how to handle it, is the key. There are two kinds of debt: installment and revolving. Installment debt is debt from loans taken out for such things as school and cars. Revolving debt is the kind you carry on your credit card. You don't necessarily need installment debt to improve your credit rating—although it can help if used properly—but you do need a bit of revolving credit. If you need to improve your score, however, chances are you have too much of revolving credit. Paring down, not eliminating, debt is what’s essential to improving your credit.

Occasional and responsible credit usage can benefit a credit rating.
Occasional and responsible credit usage can benefit a credit rating.

There are two ways to improve your credit rating when dealing with too much credit card debt. The fastest and most effective way is to completely pay off as many cards as possible. Becoming more debt free is a sure way of improving that credit rating. If your financial situation doesn't allow you to pay off all of it, you can still improve your rating simply by making timely, monthly payments to pay off your debt. Credit bureaus typically judge you based on how well you're able to manage and pay off what debt you have. Late payments can quickly drag down your credit; conversely, on-time monthly payments can push it upward.

Paying off credit card balances can improve a credit rating.
Paying off credit card balances can improve a credit rating.

Once you've paid off all debt on your credit cards, don't be afraid to use your credit card every now and then. In fact, you'll need to occasionally use credit to keep your score as high as possible. It doesn't have to be much; putting a tank of gas on the card and quickly paying it off every now and then can help keep your score in optimum condition. A good way of ensuring that you don't put more debt on the card than you can handle is to use the card to pay for stuff for which you already have cash in hand. That way, you're not using the card to pay for something with money you don't have; you're using it to keep a healthy credit score, which will make it easier for you to be approved for any loans you might need in the future.

Credit ratings can sometimes be pulled down in unexpected ways, even if you're managing your money well. When looking to buy a house and shopping for mortgage loans, for example, banks often ask permission to check your credit. Think twice before giving them permission, however. Only allow banks or other organizations to check your credit score when absolutely necessary. Every time someone does a check on your credit score, it bumps down the score a tiny bit. If just once or twice, the change won’t be too noticeable, but if over dozens of times, your credit score can begin to suffer. Keeping a tighter lock on who checks your credit score and how often is a good way of improving your rating.

For similar reasons, you also shouldn't take out too many lines of credit. This is easy to do when shopping at retail stores that offer great deals on items if you use one of their credit cards for purchases. Every now and then, taking that deal can be a great and harmless way of saving money. If you do it too much, however, your credit rating may falter, even if you're promptly paying off card balances. The more cards you take out, the more checks on your credit, which, just like when banks check your credit, can bring down your score. The other caveat is that, even though credit bureaus want you to have one or two lines of credit open, they don't like it when you have too many lines of credit. In their eyes, it makes you seem like a bad steward of your credit, which can hurt your score. By ensuring you keep a cap on how many credit cards you carry around, your rating should improve.

A poor credit rating will usually cause an individual to be required to pay higher premiums for car insurance and sometimes health insurance.
A poor credit rating will usually cause an individual to be required to pay higher premiums for car insurance and sometimes health insurance.

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