How to Improve Your Credit Score

It’s important to realize that improving your credit score takes time and patience. There is no simple or fast way to raise your score and anyone that tells you that is outright lying. However, knowing the best ways to improve your credit score gives you the opportunity to take advantage of establishing good credit.

The score that many lenders use in determining your creditworthiness is a formula developed by the Fair Isaac Company called the FICO® Score. This score usually ranges between 300s and 800s. The higher the number, the better.

Get a copy of your credit report and verify that the information it contains is correct. Under federal law, you are entitled to receive a free copy of your credit report from each agency every 12 months—at your request. This law is enforced by The Federal Trade Commission.

Equifax, Experian, and TransUnion have together set up one website, toll-free telephone number, and mailing address through which you can order your free annual report. To order online, visit annualcreditreport.com, call 1-877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, Post Office Box 105281, Atlanta, GA30348-5281.

Do not contact the three bureaus individually. Free annual credit reports are conducted and obtained through the above-mentioned contacts only.

Factors Determining Scores

Timeliness of Paying Bills – Paying your bills late has an extremely negative impact on your credit score. Also, if you’ve ever claimed bankruptcy or been turned over for collections lowers your score.

• The absolute best way to raise your credit score is to make it a priority to pay your bills on time.
• If you've missed a payment, pay it and keep paying it on time. Staying current in your payments raises your score.
  
• Accurate negative information remains on a credit report for seven years—ten years if you’ve filed for bankruptcy. So paying off an account that was turned over to collections will not remove it from your credit report.
• If you are experiencing some type of financial trouble due to the loss of employment, illness or other factor—the first thing to do is contact the creditor to see if there is something that you can work out. This will not immediately raise your score, but paying your bills on time will raise your score over the long haul.

Credit History – The length of time since you’ve established credit affects this score. A short history has a negative impact. However, it is possible to counteract the effect by paying your bills on time with a low, overall outstanding debt balance.

• If you've just begun to establish your credit, don't open a lot of credit accounts over a short-time frame. This action lowers your score and makes it too big of a risk to offer more credit from prospective creditors.
• It's wise to start off slow and begin building your credit gradually.

Outstanding Debts – It lowers your score if the amounts you owe to your creditors are close to the amount of your credit limits.

• Keep balances low on revolving credit and credit cards that you currently have access.
• Closing unused credit card accounts does not raise your credit score and may lower your score and remains on your credit report.
• Opening up new credit card accounts to increase your line of credit will not raise your score.

Application of New Credit Lines – Applying for too many new credit accounts has a negative impact on your score.

• If you've had bad credit history in the past, opening up new lines of credit and paying them on time will help you re-establish your credit.
• Too many inquiries into your credit will lower your score. However, checking your own credit report will not lower your score.

Types and Amounts of Credit Lines – Having a good mixture of credit with strong a on-time payment history improves your credit score. While having too many credit cards close to the limits has a harmful affect on scores.

• Having few credit cards and paying them on time improves your credit score.
• Apply for credit on an as needed basis only. Don't open up credit lines just to have the ability to charge more. This action can only lead to financial disaster later down the road.

Summary

Taking an active role by managing your credit wisely and paying your bills on time raises your credit score and minimizes your risk to creditors. If you slip up and pay a bill late, get back on track and keep your payments current. Be wise with your finances and don't over-extend yourself, or your credit.