Since we recently discussed credit scores and estate plans, we thought we would take some time to discuss what you can do about building a better credit score. While simple steps such as paying your bills on time are usually some of the best ways to increase your score, there are several strategies you can use that you may not have thought about, or which might seem counterintuitive. If you want a higher credit score and need some concrete tips to help you get there, you might want to consider these tips.
Building a Better Credit Score – Limit Your New Applications
If you want to build a good credit score, one of easiest steps you can take is to simply not apply for new loans too often. Plan your credit applications carefully, and only apply for a new loan if it fits into your overall financial plan. A good variety of loans spaced apart will, in general, be good for your credit. On the other hand, if you apply for numerous loans at the same time, you can lower your score. Spacing applications out over time is always better than applying for everything at once.
Building a Better Credit Score – Don’t Max Out Your Cards
While you may be able to pay your credit card bills every month, that doesn’t mean you should buy everything you can on credit and keep high credit card balances. Creditors like to see borrowers with relatively low credit usage, measured as credit utilization ratios. In general, keeping balances lower than about 20 percent of your available credit will be much better for your score than keeping higher balances on any of your cards.
Building a Better Credit Score – Keep Your Old Cards Around
One of the more counterintuitive steps people can take to build a good credit score is to keep old credit cards rather than close them. There are several reasons for this.
First, if you have an old credit card with a good payment history, keeping that card and using it every so often will keep that history on your credit report. A strong history of timely payments will only help your score.
Second, the longer you’ve had a line of credit, the better it is for your score. While you might think that having fewer cards will be better, and that closing an old card you don’t use very often will increase your score, this is usually opposite of what happens. Keeping an old card will increase the average age of all your accounts, which will in turn give you a higher score.
Since founding Parman & Easterday in 1985, Larry has led over 1,000 free, community-service education programs and helped more than 10,000 Oklahoma families go from putting off their estate plan to getting it done. His goal for every client is the same: to become the person their family calls "the one who took care of everything."
Larry is the author of three books: The Straight Shooter's Guide to Estate Planning; Estate Planning Basics; and Guiding Those Left Behind in Oklahoma. He served as Oklahoma's Secretary of State and Secretary of Commerce, and his firm is the only member of the American Academy of Estate Planning Attorneys in the state.
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