Smart strategies to quickly improve your credit score

Credit scores. We all have one. Well, technically we all have at least two — a private and a corporate one. Almost everyone knows a few things about credit scores, such as the fact that they're relevant.

You might be wondering, what IS a credit score?

One of the most common credit scores is known in financial circles as a FICO score. It is a three-digit number that provides lenders and other financial institutions with a summary of your credit history. The overall score range is between 300 and 850. In general, scores in the 670 to 739 range indicate “healthy” credit history, and most lenders will consider this score favorable. Those in the 580 to 669 range may find it difficult to obtain financing at attractive rates. To determine creditworthiness, lenders take a borrower’s FICO score into account, but they also consider other details, such as income, how long the borrower has been at their job, and the type of credit requested. The algorithm for determining each individual’s credit score varies and depends as well on other specific factors, but most financial professionals agree that it’s a mix of the following factors:

When it comes to your credit score, it all comes down to this: Your credit score determines how much interest you’ll pay and how much money you can borrow. It also determines whether or not you’ll be on the hook for extra security deposits when renting a home or setting up your utilities.

The better your credit score, the more likely your interest rate will be lower, your borrowing limit higher, and the less chance you’ll have to dish out extra funds when setting up your electric bill or cell phone.

The great news about credit scores is that these numbers aren’t permanent or static. They CAN change, and you have the power to increase your credit score by following a few simple rules.

5 Habits That Will Improve Your Credit Score

One of the most important things you can do to improve credit or maintain an excellent credit score is to make sure that you always pay your bills on time. Many of us like to pay more than the minimum balance on our credit cards or loans, and that’s a good and a smart thing to do. But if you ever find yourself in a bit of a financial bind, make sure you can make at least the minimum payment on time to keep your credit score from taking a significant hit.

Make sure you shop around for a loan before applying for a new line of credit if you're in the market for a new car, home or personal loan. Recent credit inquiries can reduce your score, so plan for when you apply for a new line of credit or an increase in your existing line of credit. It is worth mentioning that when you apply for any credit, closed end installment loans, or open end credit lines, the lender makes an inquiry with the credit bureaus. An inquiry or two won’t significantly impact your credit score, but several inquiries over a short period of time might lower it a few points.

A significant part of your credit score is calculated by examining your debt-to-credit limit ratio, or how much debt you’re carrying compared to the amount of available credit you have. If you have $100 in credit and you have $99 charged to that account, that means you have 1% of your available credit open for use. Not good. A good rule is to tie up no more than 30% of your total credit limit.

Have you ever wondered what one of the biggest mistakes you can make after paying down your debt? Closing your oldest account. Did you know that one of the most important parts of calculating your credit score is the length of your credit history? If you close your oldest accounts, your credit history is instantly shortened. It’s okay to shut down accounts, but make sure you keep your oldest account active.

Part of improving or maintaining your credit score means checking on your credit report and your credit score. You can get a free copy of your credit report every 12 months from each credit reporting company. It’s a good idea to check on your credit score at least once a year or before you apply for any new car loan or mortgage.