Why credit matters and simple steps to boost your scores quickly.
Money Girl
303 MG 3 Action Steps to Improve Your Credit Score
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I'm Laura Adams and you're listening to the Money Girl Podcast. [MUSIC] Want to buy a home, a car, or get a credit card? Well, those are just a few situations when you need tip-top credit in order to get approved and to pay the lowest, most competitive interest rates. No matter if you're building credit for the first time or you need to prop up sagging scores for a big purchase that you have in mind, I'll give you three simple action steps to improve your credit. Credit plays a huge role in the health of your financial life. It's a measure of how trustworthy you are when it comes to money. Your credit scores tell the world whether you're likely to pay your bills and credit accounts on time. The foundation of your credit is your credit report. It contains a complete history of your financial behavior, like late payments on credit accounts and certain legal actions, such as liens, judgments, and bankruptcies that affect your finances. Using the data in your credit report, various credit scoring models assign you a rating that potential lenders, merchants, and employers can use to evaluate you. If you have excellent credit, you'll be able to purchase many goods and services for less than someone with poor credit. That's because most lenders offer lower interest rates and better terms to borrowers with high credit scores. If you have poor credit, on the other hand, you'll be shoved to the sidelines and deny credit altogether or be charged crazy high interest rates. Improving your credit scores is actually very easy when you take a few simple proactive steps. Action step number one, check your credit report. Most people don't know what's on their credit report. If you've already been denied credit or are concerned about qualifying for a purchase, you've got to look under the hood. Plus, checking your credit is one way you'd know if you were the victim of identity theft. When you pull your credit report, you'll see your personal information, every credit account in your name, including account balances and credit limits, and any legal data that affects your credit. Look carefully for errors or accounts that are not yours and dispute them right away. The easiest place to view your credit report and get errors corrected is at annualcreditreport.com where you're entitled to a free copy from each of the three major credit agencies every 12 months. I received a great question from Venisha who says, "I understand that certain bills, like electric, gas, phone and cable, are not reflected on a credit report, what role do these accounts play in your credit?" As I mentioned, credit scores are calculated using the data in your credit reports. So if a merchant chooses not to report your payment history to the credit agencies, then that account has no bearing on your credit. Action step number two, use a credit card. One of the fundamental rules of credit is that you must have credit accounts and use them in order to build your credit scores. It's just like building your muscles. You get results from doing regular exercise and weightlifting, not from sitting on the couch. Credit cards are the perfect way to build credit because you decide how to use them and they showcase how responsible you are. If you pay a credit card bill on time and never max out your credit limit, you'll build excellent credit scores over time. I recommend using a credit card to make small everyday purchases that you pay off in full every month. This strategy helps you build credit without ever having to pay any interest to the credit card company. A reader named Andrew asks, "I recently closed my only credit card and saw a significant drop in my credit score. I thought canceling the account would make my score go up as I want to buy a house in a few years. Should I open another credit card?" Yes, Andrew, you need at least one credit card to maintain the highest credit scores possible. In general, closing a credit card is bad for your credit because it reduces the amount of available credit in your name. To understand more about this important topic, be sure to listen to episode number 256 called "What to Know Before You Cancel a Credit Card." September is a great month for planning. We start thinking about the rest of the year, whether it's back to school, big year-end work projects, holiday plans or travel. Planning ahead is crucial in life, especially when it comes to what happens when you're gone. Getting life insurance may sound daunting, but policy genius makes the process a breeze. With policy genius, you can find insurance policies that start at just $292 a year for a million dollars of coverage. Some options offer same day approval and avoid unnecessary medical exams. 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Contact us before canceling entire accounts to continue bill credits or credit stop and balance on a required finance agreement too. Bill credits end if you pay off devices early. See T-Mobile.com. I love learning and anything that makes learning easier. If you're a parent and your child needs some homework help, then IXL is a right for your family. IXL is an online learning program for kids covering math, language arts, science and social studies. IXL has interactive practice problems for topics from pre-K to 12th grade and everything is organized by grade and subject. As kids practice, they get positive feedback, awards and explanations for wrong answers. IXL figures out what your kids need more help with and recommends more topics to practice. Their videos, lessons, sample problems and learning games too. One subscription to IXL gets you all subjects and all grade levels. Membership started just $9.95 a month. It's no wonder IXL is used in 95 of the top 100 school districts. I think the positive feedback that IXL gives is really crucial when it comes to learning. So make an impact on your child's learning. Get IXL now and money girl listeners can get an exclusive 20% off IXL membership when they sign up today at ixl.com/moneygirl. Visit ixl.com/moneygirl to get the most effective learning program out there at the best price. Action step number three, increase your credit limits. If closing your credit card and slashing your available credit limit has a negative effect on your credit scores, you may wonder if the opposite is true. I received this question from a reader named SK. I wanna make a large purchase on a credit card so I get the purchase protections and rewards and then pay it off in full when the bill arrives. However, my credit limit on the card isn't high enough. Should I ask for a credit limit increase or will doing that hurt my credit score? The answer is that you should always ask your credit card company for a credit limit increase when you need it. They'll probably grant your request if you've been a good customer. To build credit, you need high credit limits relative to your outstanding balances. However, never go overboard and max out a card because that will hurt your credit. A good rule of thumb is to never charge more on a credit card than 25 to 30% of your credit limit even if you pay off the bill right away. You can find out more about the best way to manage credit cards in a previous podcast called credit utilization, what it means for your credit score, which is episode number 270. The biggest factor in how credit scores are calculated is whether you pay bills on time. So don't overlook this fundamental, yet powerful aspect of building credit. For more strategies to build credit, download my free credit score survival kit. The kit includes an ebook, audio and video tutorial that shows you step by step how to check your credit report, visit smartmoves2growrich.com and click the button that says free credit score survival kit. Again, that smartmoves2growrich.com. To read a transcript of this show, connect with me on social media or submit your money question, visit the money girl page at quickanddirtytips.com. And also, if you're not subscribed to the podcast on iTunes, that's how most people get the show. Subscriptions are always free and allow you to get each new weekly episode the moment it's released on the web. I'm glad you're listening to Ching. That's all for now. Courtesy of money girl, your guide to our richer life. (upbeat music) This is the sound of your ride home with Dad after he caught you vaping. Awkward, isn't it? Most Vapes contain seriously addictive levels of nicotine and disappointment. Know the real cost of Vapes, brought to you by the FDA. 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