How to increase your credit score

My wish for you is that one day – if it hasn’t happened already – you will know the freedom, dignity, and security of being debt-free. Waking up in the morning knowing that no one holds a financial claim on what you do that day can add years to your life.

But until that day happens, you need to keep an eye on your credit score.

Your credit score is the number that most lenders look at before they grant you credit, and the higher your number, the better the terms of your indebtedness are likely to be. Here are five ways to boost your credit score:

• Get a copy of your credit report. There are three major credit bureaus that keep records of how you handle your debts: Equifax, Experian, and TransUnion. You are entitled by law to a free copy of your credit report at least annually from each of them, which you can access online at com. They won’t likely be identical but should be close. Inaccuracies can hurt your credit score, so start by checking for mistakes or misinformation. If you find any, ask each credit bureau to correct them and update your report.
• Pay your bills on time. The simplest way to increase your credit score is also one of the most effective. And probably the best way to do that is to automate bill-paying whenever you can. Most utilities, mortgage lenders, credit card companies, and other vendors will help you set up automatic payments online. Putting your monthly bills on auto-pilot will save you time, postage, interest and late-fees, and peace of mind – and it could lead to a higher credit score. All you have to do is make sure the money is in your bank account.
• Reduce your outstanding debt. This one’s a no-brainer but clearly easier said than done. Nearly a third of your credit score is based on your credit utilization rate, which measures how much of your available credit you’ve tapped. Again, the lower the better. If yours is higher than 30%, make paying down your debts a priority. Start with the ones that charge the highest interest rates, such as credit cards and work your way down the list. Doing so will help raise your credit score while lowering your interest payments, and you can then use the extra cash to pay off your debts even faster.
• Don’t close any old accounts… yet. It might not seem intuitive, but getting rid of old credit accounts you haven’t used for years can hurt your credit score by driving up your credit utilization rate. Actually, the longer you’ve maintained an account in good standing, the more it helps you. You can consider cleaning up old accounts once you’ve gotten your credit score where you want it. In the meantime, you might even consider making small transactions with these accounts – and promptly paying them off – to keep them from going “stale”.
• Borrow less often. Lenders keep track of how many times you apply for credit each year, and before they lend you money they will pull your credit report, which can hurt your score. That’s different from “soft inquiries” requested as part of a routine background check, such as when you apply for a new job. These typically have no impact on your credit score.

Remember the old saying: the best way to get credit is to prove that you don’t need it, and your credit score gives lenders that proof. Following the steps above won’t guarantee you overnight results, but it will start moving you in the right direction.

And one day, when you don’t owe anybody anything, your credit score won’t matter anymore. Here’s to that day.