Knowing your credit status is important not only when you need to apply for a loan, but also because it can affect other areas of your life, such as your ability to get insurance coverage or even a job.
Once you know your status, you can go about working to improve in any areas in which you need to.
The first step to checking your credit status is to get a copy of your credit report. In the U.S., each person is entitled to a free copy of their report from each one of the three major credit bureaus annually, through annualcreditreport.com. You can also go to MoneySupermarket for a credit report or another website, but you likely will have to pay.
Once you have a copy of the report, check it for errors and correct any you find by contacting the appropriate credit bureau in writing.
While a credit report won’t tell you the status of your credit score, it can give hints as to whether the news is going to be good or bad. For example, if your report shows multiple ‘maxed out’ lines of credit or numerous instances of late payments, you can assume your score is lower than it should be.
To get your actual credit score, you probably will have to pay, but it can be worth it so you know exactly what your score is and what you need to do to raise it.
Raising your credit score
If your credit score is lower than it should be, there are a few things you can do to improve it.
Late payments are among the factors that hurt your score the most, so the first thing you should do is to bring any past-due accounts current. This means paying whatever part of the debt you are behind on plus any late fees. Also, don’t let any current accounts become delinquent.
Once you have all your accounts current, you should work on paying down as much debt as possible. One of the main components of your credit score is how much debt you carry vs. how much available credit you have.
A good strategy is to pay down the debt with the highest interest rate first. Make sure to make at least the minimum payment due on all your other debt, though. Once you have paid off the debt with the highest rate, move on to the debt with the next highest rate.
Once you have paid off a card, don’t close the account. Closing the account won’t help your score; in fact, it could hurt it, because it will lower the amount of credit you have available and make your debts look larger.
On the other hand, you want to avoid opening a lot of new accounts. The inquiries companies make when you request a new card can lower your score slightly in the short term and having lots of new cards can cause your credit history to be refigured, making it appear not as long as it really is.