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Give your credit score a boost

Date posted:  7/15/15 11:45:00 AM It's important for consumers to stay on top of their credit scores.

There are few three-digit numbers that can alter a person's life more than a credit score. While a solid credit score can help a homebuyer acquire a low interest rate on a mortgage loan, a poor credit score can scare off lenders in almost every industry, making it difficult to acquire financing for a car, let alone a home.

This happens because lenders determine a lot based on a consumer's credit score: Lenders try to decide if a person is responsible enough to repay a loan or if he or she appears to be a risk. Loan agents want the least amount of risk possible when dealing with loan requests, and a high credit score usually indicates financial responsibility.

Rachel Smith, an associate professor of finance at the University of Indianapolis, told NBC Indianapolis affiliate WTHR that a lofty credit score can save a person quite a bit of money.

"We're talking thousands and tens of thousands of dollars, potentially," Smith said. "I think people just don't realize how many thousands of dollars that they can save in many different areas of their financial lives."

Typically, credit scores range from 300 to 850, and most financial experts agree a score of more than 700 will keep consumers in good standing with lenders.

Understanding credit utilization rates
Tyler Roberts, a homebuyer from the Midwest, told WTHR he had a strong credit score of about 720 when he first started looking for a home with his wife. But the Roberts soon realized they could save even more on a home if he could raise his credit score to the upper​ 700s.

"We started applying for house loans," he said. "It was 'Well, if you're not above 760, you get a higher interest rate,' and when we looked to get cars, if you weren't above 760, you got higher interest rates."

To boost his credit score, Roberts started paying his credit card twice a month to keep his credit utilization rate as low as possible.

Lenders generally view a low credit utilization rate as a strong sign the credit user is a responsible spender. For instance, if a consumer has a credit limit of $5,000 and spends $4,000 on purchases during a single month, he or she will have a credit utilization ratio of 80 percent, which is very precarious to lenders.

Most experts agree consumers should try to keep their credit utilization rates at or below 20 percent. Keeping a healthy ratio can help potential borrowers maintain their credit balances and improve their scores in the process, which is something Roberts noticed and used to his advantage.

"We'd go through and pay it a couple times a month to keep it below that 10 percent threshold, so when they take that snapshot, it looks like you have more credit," Roberts said.

Other credit card tips to remember
The Federal Reserve reminded credit card users to pay their bills on time, recognize any outstanding debt and limit the number of credit lines they take out.

When it comes to paying bills on time, few things hurt credit scores more than a tardy payment. Not only will a late payment stay on a credit report for some time, but many banks charge late fees, hitting consumers on two fronts.

Credit card holders who have difficulty remembering when to make a payment should consider setting up a reminder on their phones or computers for when a payment is due. Taking a few seconds to set this alert and making payments on time can help save money and improve credit scores.