Why do you even need a strong credit score? It makes it far easier to qualify for loans and credit cards with low interest rates.
Your three-digit FICO credit score reflects how well you've
paid your bills and managed your credit in the past. A higher score means that you have practiced sound financial habits and are less likely to default on loan or credit card pay
Because you are less of a risk, lenders will reward you with lower interest rates when your credit score is high. That will result in lower monthly payments: The lower your interest rate, the lower your mortgage, student and auto loan payments will be each month.
And what is a good FICO credit score? Most lenders consider a score of 740 or higher to fall into the "very good" category. A score of 800 or higher is considered "excellent." Your goal should be to get as close to these numbers as you can.
Step one: Pay your bills on time
The most important step to building a good credit score? Pay your monthly bills on time.
Certain monthly payments, such as the ones you make on your mortgage, student, auto and personal loans, are reported each month to the national credit bureaus — Experian, Equifax and TransUnion. Your credit card payments, too, are reported to these bureaus.
If you pay any of these bills 30 days or more past their due dates, they will be reported as late to the bureaus. That's a big problem: A single late payment will remain on your three credit reports for seven years. And one late payment can drop your credit score by 100 points or more.
The smart move, then? Pay all your bills on time to steadily build a stronger credit score.
Step two: Pay down your credit card debt
What is the next most important move you can make? Pay down as much of your existing credit card debt as you can.
The more of your available credit you use, the worse it is for your credit score. But when you pay off your credit card debt, your score will steadily improve.
Study your household budget. Devote as much of your extra income as you can each month to paying down that credit card debt. Doing so will help you reach the "very good" and "excellent" range of credit scores.
Don't look for a quick fix
If your credit score is damaged, it will take time to improve it, even if you take the two steps above. How long? That depends. If your score is low enough, it might take a year or more of on-time payments and debt reduction to boost your score to 740 or 800.
Don't be tempted by any company that promises to instantly boost your credit score for a fee. There is nothing a company can do to improve your score that you can't do on your own for free.
The better approach is to take the slow-and-steady route to gradually repair your ailing credit.
Posted by Wolf Parlar