If you want to improve your credit score, it is important to understand how it works. Your credit score is different from your credit report. Once you understand each of the components of your credit score you can work on the individual aspects of your credit score to improve it. There is a difference between no credit history and a poor credit history, but both will affect your credit score. Your credit score will help you qualify for the best mortgage loans and can save you a lot on interest over the course of the loan.
The first portion of your credit score is the length of your credit history. This takes time to establish, which means you should begin building your credit score as soon as possible. The longer your credit history the better your score will be. You should also leave your oldest credit card open, even if you are closing out several credit cards to stop yourself from going into debt. If you do not have any credit history you can use a store financing opportunity or apply for a basic credit card to begin establishing your own credit history.
The second portion of your credit score is your payment history. This portion of the score looks at whether or not you have made payments on time consistently over the years. If you have missed payments in the past or had late payments, this will show up on your credit report for seven years. However if you can establish a good credit history for the last few years you may still qualify for good loans. If you have any outstanding debts that have been sent to collections you will need to take care of those debts to improve your credit score.
Debts that have been sent to a debt collection agency can be settled if you have money saved to pay a lump sum to the collector. Generally you can pay between twenty-five to fifty percent of the debt. You will need to call the collection agency and offer to pay that amount as settlement in full. If the collector agrees, you need to request a letter stating that the payment will count as settlement in full. After you have received the letter send in the payment. Keep a copy of the letter and the payment on file. Settled debts do not look as good as debts paid in full, but they are better than outstanding debts paid to collections.
The third portion of your credit score looks at the amount of available credit you have. You do not want to have too much available credit, but you do not want to be using most of your revolving credit lines as well. This means you do not want to have too many credit cards open, even if they are not carrying a balance, and you do not want your credit cards to be maxed out or nearing their limits. Managing your credit wisely and rarely using your credit cards can help with this portion of your credit score.
Remember that any attempts to repair your credit may take a quite a bit of time, since they will be looking at history and behavior patterns, which are established over time. Working to pay down your debt and clear up any items in collections are worth the time effort. The best credit scores come from being responsible with your credit from the very beginning. You can make careful decisions, make your payments on time and be careful with how much you borrow no matter your age or financial situation. It can be difficult to find a loan with poor credit, so managing your money wisely now can help you in the future. When you are trying to improve your credit score, you should use a secured credit card instead of a prepaid credit card, since this will show that you can make monthly payments on a regular basis.