Step 1: Pay your bills on time
Your payment history accounts for about 35% of your credit score more than any other factor. If you have a history of paying bills late, you should start paying your bills on time. If you haven’t made payments, get current and stay current. Every on-time payment updates positive information on your credit report. The longer your history of paying bills on time, the higher that part of your credit score will be.
Step 2: Check your credit report
* Mistakes happen, so please review your report carefully for:
* Accounts that are not yours
* Accounts with incorrect account date or credit limit
* Names and Social Security numbers that are not yours
* Addresses where you have never lived
* Negative information, such as late payments, more than seven years old. (Late payments can only legally stay on your credit report for seven years.)
Under the Fair Credit Reporting Act, the three national bureaus (Equifax, Experian, and TransUnion) and your creditors are responsible for correcting errors on your report. The Federal Trade Commission (FTC) website has detailed steps for correcting errors, as well as a sample dispute letter. If you find accounts that aren’t yours and suspect you’ve been the victim of identity theft, you’ll need to place a fraud alert on your credit report, close those accounts, and file a police report and complaint with the FTC.
Step 3: Pay off your card balances
The amount of debt you have is carefully analyzed to determine your score. Your reported total debt is taken into account, as well as the number of accounts with outstanding balances and the amount of available credit that has been used. The reported total debt is compared to the total available credit to determine your debt-to-credit ratio. Your credit score can take a hit if those numbers are too close. Your best plan to reduce your debt is to make a plan to pay it off. While it may seem like a smart move, don’t consolidate debt onto a lower interest card. Credit inquiries and opening new credit can lower your credit score, at least in the short term. Closing old cards with high credit limits can also upset your debt-to-credit ratio. If a new credit offer is too good to pass up, keep the total amount of credit available up by not closing any old credit cards.
Step 4: Use credit
You must use credit regularly so that creditors update your credit report with current and accurate information. While paying with cash or a debit card can make it easier to stick to a budget, a cash-only lifestyle does very little to improve your credit score. The easiest way to use credit is with a credit card, especially if you’re trying to improve your score to qualify for an installment loan. If you have an old credit card, start using it responsibly. A long credit history is a positive determining factor for your credit score, so it may be advantageous to reactivate an inactive account. Although you should make sure you use credit regularly, only charge as much as you can afford. Keep your credit balances low so you don’t hurt your debt-to-credit ratio.
Step 5: Monitor your report
Keeping a close eye on your credit report will allow you to see if your hard work is paying off. Credit monitoring allows you to monitor account activity. You will also be immediately informed of any fraudulent activity. Credit bureaus and FICO offer credit monitoring services, which typically cost around $15 a month to monitor all three credit reports and scores. You can also use Credit Karma or other free sites alike.
Step 6: When looking for a loan, do it quickly.
This is a trick due to the time lag between the lenders and the 3 offices.
When you apply for a loan, the lender will “run your credit”—that is, they will send an inquiry to one of the credit rating agencies to find out how creditworthy you are. Too many questions of this type can hurt your FICO score, since that could indicate that you are trying to borrow money from many different sources. Of course, you can generate a lot of inquiries by doing something perfectly reasonable, like searching for the best mortgage or car loan by applying to several different lenders. The FICO Scoring System is designed to allow for this by considering the time period over which a series of inquiries are made. Try to make all of your loan purchases within 30 days so inquiries are grouped together and it’s obvious to FICO that you’re looking for loans.