Spring cleaning for your credit score

Dreading spring cleaning this year? Here’s an idea: Instead of scrubbing, scouring and laundering, consider polishing your credit score instead.

Your credit score is a number between 350 (very high risk) and 850 (very low risk) that lenders look at to determine how much of a credit risk you are. 

Your rate has to be really low in order for lenders to totally reject you, but a low score could mean they’ll charge a higher interest rate. 

The difference between a great score and an OK one can mean a dramatic difference in your borrowing rates — and your payments. 

Even if you don’t plan to be shopping for a loan in the near future, you likely will be at some point, and fixing a bad credit score can take time. That’s why an annual checkup is a good idea.

Credit-rating agencies don’t disclose exactly how they calculate credit scores, but in researching various experts’ advice, I was able collect a handful of simple strategies you can use to bolster your score. 

Order your free credit scores

The first step is finding out just where you stand. You’re entitled to one free credit report from each of the three major credit bureaus (TransUnion, Equifax and Experian) every 12 months. 

Go to annualcreditreport.com to get yours. Don’t use other sites that promise free credit reports, as many of them come with hidden fees or are free for a short time and then charge you.

Get mistakes corrected

When you have your reports, check for any inaccuracies and contact the bureau about changing them. They’re usually pretty receptive if they’re in the wrong. When I got my free credit reports last year, one of them showed an account I never had. I emailed them, and it was removed within a couple weeks.

Fix missed payments

If you have only one or two missed payments, get in touch with the lender and make good. Then ask if they’d be willing to erase those late payments from your report. If you’ve been on the ball about making payments outside those couple mistakes, they may agree. 

Payment history is a major component of your score, so fixing this can help a lot.

Keep balances down

Total up the credit limits you have and compare that figure to the amount you’ve borrowed. Ideally, you should keep your balances below about 30 percent of your limit. Again, credit bureaus aren’t disclosing exactly what that percentage should be, but most experts agree that 30 percent is about right. At any rate, the lower the better. That applies both to the percentage on any given card as well as your overall credit usage. 

If your percentage is high, pay down balances to get it below 30 percent. If you can’t pay them down now, experts suggest you can transfer a balance from a card with a high percentage to one with a lower one so that all cards are below 30 percent.  

Eliminate small balances

One of the factors in your credit score is how many cards you have balances on. Do you have a bunch of cards with pesky little balances? Pay them off! (Or at least transfer balances to consolidate.)

Keep old accounts

If you pay off an account, don’t be in a hurry to close it. If you have an exemplary repayment history, keep that account open so its sterling record stays on the record.

Going forward

After doing this cleanup, you of course should keep your credit clean. That means, obviously, paying bills on time. 

Credit scores are built over time, not overnight, and the best way to build yours up is simply to pay your bills month after month. If you’ve missed payments, pay them and keep paying them. As those missed or late payments recede into the past, they will begin to mean less to your credit score.

If you’re having trouble making your payments, contact a credit counselor for advice. Seeking this kind of help won’t hurt your scores, and finding a way to manage your credit will help your score in the long run.

When you do need a loan

If you’re shopping for a new loan, try to do it within a focused period of time. Searching for a bunch of new lines of credit over time can raise red flags for your credit score. 

A short period of searching, however, looks like what it is — shopping for the best deal for a specific project.

Happy spring!

 Eric Braun is the co-author of the forthcoming book for young readers, The Survival Guide for Money Smarts: Earn, Save, Spend, Give (Free Spirit Publishing).Write him at ebraun@mnparent.com.