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3 Key Considerations for Improving Your Credit Score

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If you’re looking to reap the rewards of some of the top credit card offers, it’s not as simple as filling out that pre-approved application that landed in your mailbox. In fact, pre-approved doesn’t even mean you’re really approved. Instead, the bank will still conduct a thorough review of your personal finance history to determine your creditworthiness, and if you’re approved, it’ll also use that information to calculate your APR and set your credit limit.

Your personal finance history is bundled into one key piece of information: your credit score. It represents how much debt you have, how well you’ve done at making on-time payments, how long you’ve been using credit and a range of other factors. Credit scores range from 300 to 850; the higher your credit score, the more likely you’ll receive approval for the best credit cards. So what should you do if your credit score seems like a losing number? Outside of the obvious must-dos such as making on-time payments and avoiding the pitfalls of maxing out your cards, there are other ways to improve your credit score. Consider these key pieces of advice to get on the right track.

Before you fill out a credit card application, take extra care to improve your credit score first.
Before you fill out a credit card application, take extra care to improve your credit score first. Image courtesy of Shutterstock.

1. Credit-reporting agencies aren’t always correct. 

Before making any adjustments to your financial behaviors, make sure that credit reporting agencies have correct information about you. A 2012 study conducted by the Federal Trade Commission revealed that 5% of consumers had errors on their reports that might result in paying more for banking products. There are three major credit-reporting agencies, Equifax, Experian and TransUnion, and federal law guarantees you free access to your report once each year.

2. Paying down debt requires some personal changes. 

Once you’ve reviewed your history, it’s time to focus on the areas where you can have an immediate impact. The best place to start is creating an aggressive timeline to pay off your existing credit card debt. By shrinking the amount of money you owe, you’ll improve your debt-to-credit ratio. For example, if your credit card limit is $10,000, and you’re carrying a balance of $8,000, your ratio isn’t going to impress anyone reviewing your application. Take a look at your monthly spending habits to identify areas where you can reduce expenses to shift additional money toward reducing your credit card balance. Can you eliminate that expensive cable bill? Does your mobile company offer any lower-priced plans? Are you spending too much on dining out? By making adjustments to your personal purchasing habits, you can create positive change for your credit score.

Take a look at your spending habits, and look for opportunities to eliminate expenses to put more money toward your credit card payments.
Take a look at your spending habits, and look for opportunities to eliminate expenses to put more money toward your credit card payments. Image courtesy of Shutterstock.

3. Closing other cards isn’t always a wise move.

Conventional wisdom may lead you to believe that closing other lines of credit will make you look better in the eyes of potential lenders. Fewer cards means you’re more responsible, right? Not necessarily. If you have older cards that you aren’t using as frequently, their age plays a valuable role in establishing yourself as a trustworthy individual. Additionally, the credit limit on those cards is helpful in your overall debt-to-credit ratio. Rather than closing all your old cards, I recommend keeping the oldest card open and maintaining some regular activity on it.

Looking for more insights into the world of responsible credit card management? Check out TPG Senior Points & Miles Contributor Nick Ewen’s series on Debunking Credit Card Myths.

Featured image courtesy of Shutterstock.

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