The 3 golden rules of improving your credit score

You don’t have to take a finance class to learn the basics of a good credit score.  And golden rules are golden because of their simplicity and effectiveness, as indicated by some great ones from the classic films: “Show me the money!” and “There’s no place like home.” So how simple are the golden rules for raising your credit score? “Don’t borrow more than you can pay.” “Pay every time and on time.” “Watch your credit history like a hawk.” You keep the rules, and your credit score will raise. It really is that simple.

1. Don’t borrow more than you can pay

This ratio is going to determine whether you’ve taken out too much debt and are a risky customer or whether you have too little income to support more debt. It is basically all of your recurring monthly debt payments (do not include variables like utilities and groceries) and divide it by your total gross monthly income. The ratio should be less than 36 percent to help you have a good credit score. If you need to shed debt to get to that magic number, pay off accounts (but don’t close them). The more credit you have available that you are not using the better it looks on your credit history and your final score.

2. Pay every time and on time

It can be difficult when life throws emergencies in your face, but paying debts consistently and on time is one of the biggest ways to improve your credit score. If you have to take out short-term loans to tide you over, it can be better than being dinged on your credit score for missing a payment deadline. Some payments count more towards your credit score and a missed mortgage payment can really drop your score significantly.

3. Watch your credit history like a hawk

Credit bureaus are not perfect and in this age of identity theft, it pays to be watchful over your accounts. There are some services that will notify you when new information goes on your credit history and watch out for fraud, but ultimately, it is your responsibility to make sure nothing goes on the history that is not true. This can mean a little work on your end, but it pays itself back many times when you can get the best and lowest rates on anything from car loans to mortgages later on.

 

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