How to improve your credit score in 5 easy steps

Oh, the credit score. That almost mystical three-digit number that determines our financial faith. Whenever you want to obtain a loan, whether it is a credit card, a car loan, or a mortgage, the lender will check your credit report to determine how likely you are to pay them back in full and on time. Not only will your credit history determine whether you will get the loan, but it will also help dictate the terms of the loan, such as the amount of money you will get and at what interest rate.

If you are thinking of applying for a loan in the near future, it pays off to work on improving your credit score. A lower interest rate can save you hundreds if not thousands of dollars throughout the life of the loan. Keep in mind that a credit score doesn’t move up immediately; it takes time, so start working on a plan six months to a year before you apply for a loan.
Here are five tips for improving your credit score.
1. Keep the oldies aroundCredit history has a big impact on your credit score. The longer your credit history, the better your score should be, so while you might think to close that old credit card you’ve had since college, don’t.
2. Don't close accountsYou might be tempted to close that account you struggled with and finally managed to pay off, but think twice before you do. Credit scores are calculated on a number of factors, one being your available credit to debt ratio. Closing that zero balance account will through that ratio into whack.
3. Keep low balancesAs we mention in the point above, keeping a healthy credit to debt ratio is crucial in having a good credit score (experts recommend keeping a 30% ratio). Paying down balances will help you improve your ratio and therefore your score.
4. Better late than neverThe more punctual you are with your payments, the higher your score will be, but missing a payment happens even to the best of us. If you miss a payment, pay it as soon as possible. Late payments under 30 days are typically not reported to credit agencies. Don’t wait until the next cycle to make the payment.
5. Keep an eye on your reportConstantly monitoring your credit report can help you spot errors that can save your credit score. It could be something big like a fraudulent loan obtained through identity theft, or it could be a mismatch of your name or address. Any error, no matter how big or small, should be reported in writing to the credit bureaus.