How to Boost Your Credit Score and Save Thousands in Interest

Your credit score can determine not only if you get a loan, but also how much that loan will cost you in interest. That number can also affect your chances of getting insurance, certain jobs and sometimes even a cell phone, as the use of credit scores spreads beyond traditional lenders.

A credit rating is a numeric score — between 300 and 850, with 850 being the best — that summarizes the information on your credit report. Creditors use this information as a forecast of how you will repay your debt or other obligations. The credit score is determined by these five factors:

  1. Payment history (35 percent of score). You’ll benefit from paying your accounts on time.
  2. Outstanding debt (30 percent of score). Keep a low utilization level — the percentage of available credit being used for each card.
  3. Length of credit (15 percent of score) Keeping accounts for a long time is helpful.
  4. Credit mix (10 percent of score) The more diverse types of credit, the better.
  5. Search for credit (10 percent of score) Inquiring about or opening a lot of new loans can lower your score.

Here are steps you can take to improve your credit score:

  • Pay your bills on time.
  • Pay down balances on credit cards and other “revolving credit,” and keep them down.
  • Apply for and open new credit accounts only as needed. Inquiring about or opening a host of new loans can hurt your score.
  • Don’t close unused credit cards as a short-term strategy to raise your score. This approach could actually backfire and lower your score.
  • Check your own credit reports for accuracy.
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