Increase savings by boosting your credit score

Want to save more money? Consider taking steps to spruce up your credit score.

A high credit score can save you money all day, every day. Consider the following ways that a stellar credit score improves your financial picture:

• Better interest rates. People with high credit scores enjoy lower rates on credit cards, auto loans, mortgages, and more. Anytime you borrow money from a lending institution, your credit score determines how much interest you'll pay.
• Insurance premiums. Did you know that insurance companies often pull your credit score to decide whether to offer you a policy and at what price? The idea is that if you're responsible with your credit, it's assumed you're more likely to be responsible in other areas of your life, such as driving safely and maintaining your home.
• Job prospects. Job hunting? More and more employers are using credit scores to help make hiring decisions. It's assumed that your credit score reflects how responsible you are.
• Utility bills. Many people don't realize that bad credit usually means you'll pay deposits on gas, electric, cable and phone services, while those with good credit have the deposits waived.

Now that you know how bad credit can cost you, let's talk about ways to up your credit score and keep more cash in your high-interest savings account, and out of the hands of lenders, insurers and utility companies.

How to improve your score

Even if your credit score is less than perfect, there are ways to recover. CNN Money prescribes the following six ways to improve your credit score:

1. Review your credit reports on a regular basis. You can request one free report each year from each credit bureau--Equifax, Experian, and TransUnion--by going to annualcreditreport.com. Since much of what shows up on one report will show up on another, consider ordering one report every four months, rather than ordering all three at once. Also know that scores between bureaus can differ by up to 20 points, depending on how your information was reported to the bureaus and how the information was compiled in the credit report. Once you have a report, check it for incorrect information such as misreported delinquencies, inflated loan amounts, and incorrect credit limits. Send your request for corrections to the bureaus in writing.
2. Make sure you pay your bills within the terms of the grace period. Everyone forgets to pay a bill here and there, especially the irregular bills, but once you're 30 days past due, lenders can report it to the bureaus, dropping your score by as much as 100 points for a single delinquency! Create reminders on your calendar or, better yet, enroll in automatic bill pay to make sure your payment is received on time.
3. Make your credit card debt your number one target in debt reduction. Credit card debt is revolving debt, and decreasing revolving debt boosts your score more than paying off installment loans. According to the CNN article, "paying off a $250,000 mortgage when your score is already high will boost it by only five or 10 points…But wiping away a few thousand bucks on plastic can add 100 points."
4. Stay below the magic number--10 percent. Even though you pay off your credit card balance in full each month, it doesn't mean you're not doing harm to your credit score. Credit card companies report the total amount you charge on your card to the credit bureaus, and it can affect your score if you regularly use more than 10 percent of your credit. Try to use cards sparingly. If your credit limit is $15,000, try to only charge $1,500 on it each month, and avoid using your cards for a few months before you apply for a loan.
5. When it comes to credit cards, it's good to play favorites. The FICO credit scoring model penalizes people who carry balances on multiple cards, so choose a favorite card and use it for the majority of your purchases. The caveat is that some credit card companies are closing inactive lines, which decreases your available credit and hurts your score, so make a small charge on your other cards every few months.
6. Ask FICO for advice. If you buy your score (an annual credit report is free, but your exact FICO score is $16 at myfico.com), you'll have access to a free Score Simulator tool that will show you how certain actions will positively or negatively affect your score. Equifax and TransUnion currently offer FICO scores for sale to consumers; Experian does not.

Keeping your credit score up can save you cash and give you an edge while job hunting, both of which translate into more cash in your pocket, or preferably, in your high interest savings account.

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