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The best ways to improve your credit score

Updated on August 25, 2010

Improving your credit score takes time

So let me guess, you've decided you want to buy a car or a house and you now realize that the all-important credit score that you've been ignoring for the past decade is suddenly quite valuable to you as you apply for a mortgage. You really need to have a credit score above 700 if you want to get a decent deal on a mortgage or car loan. The difference between 50 points on your credit score could be tens of thousands of dollars on your total mortgage payment over 30 years. There are many steps you can take to improve your credit score, but they all take a little bit of time and some effort, but in the long run they are absolutely worth it.

Learn your score

The first step is to learn what your score is. There are several places where you can do this. Just go on Google and search for credit report. Do not sign up with one of those sites you see advertised on TV, like free credit report (dot com!). These sites will try to get you to sign up for their credit monitoring service which is a ripoff (in my opinion). You should never pay money to see your credit score.

Improve your credit score

Now we're going to look at how you can improve your credit score. Here are some things you can do:

  • Pay off your credit cards. If you have a balance on your credit cards that you've been carrying over from month to month (with interest), pay it off now.
  • Pay off your installment loans. This will have less of an effect as paying off the credit cards, but it's still something that will help. Paying off student loans, car loans, and other monthly loan payments will decrease your overall liabilities.
  • Don't charge too much. It's generally a good idea to never charge more than 30% of a credit card's limit in a given month, and to pay off the balance at the end of the month immediately and not carry it over.
  • Use older credit cards instead of new ones. Credit card companies report payments to the credit score bureaus when you are using your card. If you stop using a card, they stop reporting that it's being used. The credit score bureaus love people who have had the same credit card for a long time because it shows that they are reliable and responsible with their money. Whatever you do, don't cancel an old card unless they are charging and unreasonable fee.
  • Ask for goodwill. If you've only had one late payment in your credit history, but have otherwise been good at repaying on time, write to your credit card company and ask for a goodwill adjustment. They might agree to erase the late payment from your history.
  • Always dispute negatives in your credit history. If you have ever had a dispute with a company over a bill, there's a chance that's showing up as a negative on your credit history. If it's a small bill, tell the credit bureaus the account was "not mine" and chances are they won't even look into it if was long ago. You can also dispute with the lender and they might drop, especially if they've been bought out by another company and don't want to create confusing paperwork.
  • Correct errors in your report. Make sure they have up-to-date credit limits for you, and all negatives over 7 years old have been dropped. Don't worry about things like incorrect addresses, misspelled names, old employer info, etc. That stuff really doesn't matter for your credit score, just make sure the error is not really someone trying to steal your identity or the result of the credit bureau mixing you up with someone else.

Decreasing your credit score

The following things will hurt your credit score. Avoid them at all costs:

  • Canceling an old credit card account
  • Lowering your credit limits
  • Being late with a payment
  • Applying for a new credit card
  • Consolidating your credit accounts

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