A common question people often ask is, “How can I improve my credit?” Since credit can impact many things, including: employment, down payments, interest rates, utility deposits, and even car insurance, improving your credit can help you in a lot of ways. With all of the information floating around out there, we want to make sure you have all the correct answers to the questions below!
5 Frequently Asked Questions on How to Improve Your Credit Score:
Will having a better paying job or putting more money in savings help?
It will certainly help impress your loan officer if you apply for a home or car loan, for example. However, your credit score is all about your credit, so more money will not have an impact on your score. Your credit score is broken down based on credit utilization, new lines of credit, length of credit history, types of credit used, and payment history. See the image below for the actual breakdown of your FICO credit score.
Will paying a company to improve my credit help?
Actually, by law there’s nothing that a costly credit repair type company can do for your credit that you can’t already do by yourself, and for free! We actually suggest steering clear of credit repair companies. “Credit repair” companies often recommend or use fraudulent and illegal methods to repairing credit.
Should I keep a small balance on my credit cards for the best possible credit score?
Actually, FICO credit scoring company says no. The less you owe, the better your score. That being said, if you have credit cards that you rarely use and they just gather dust in a box somewhere, that will not do much to help your score. FICO likes that you have credit and that you use it very conservatively, but that you do actually use it. So perhaps once every month or two, you could charge a tank of gasoline to a card and then pay it off in full when the statement comes.
My card balances are all well under their card limits, not maxed out, so I’m good on those cards, right?
This is where credit utilization comes to play. FICO likes that you have credit and that you use it, but the less you owe, the higher your score will be. Amount owed on your credit counts for 30% of your score. If you use more than half of your credit line (such as owing $1,000 on a $2,000 card limit), FICO calls it a score killer!
Will a credit counseling Debt Management Program (DMP) ruin my credit?
Just the opposite, actually. Like I’ve mentioned, the less you owe, the better your score. So as you pay your debt down on a DMP, your score will go up. We often pull credit reports on clients before they start the DMP, a few years into the DMP and at the finish of their DMP when they’ve paid off all their debt. What we see reflected in their credit score is that their score goes up and their debt goes down. So don’t let that myth keep you from going on a DMP and becoming debt free!
Combined, credit utilization and payment history is 65% of your credit score so be sure to pay on time with at least the minimum due and aim to knock down your debt. That will greatly improve your credit score. Plus, there’s nothing quite like the feeling of financial freedom when you become debt free!
If you would like some help improving your credit, contact a member agency today for a budget and credit counseling session!