Now that you know how your score is calculated, you can begin making changes to your current credit situation. Just remember, when it comes to mortgages, auto lending and credit cards, the higher your score, the lower the interest rate you're going to pay, so the time and effort it takes to improve your credit score could save you hundreds of thousands of dollars over the course of your lifetime.

Considering the outrageous cost of bad credit, here are a few simple steps you can take on your own to improve your credit score.

 

Steps to Increase your Credit Score

 

Pay your bills on time every month.

 

Sounds simple, but this is the biggest thing you can do to keep your score high and one of the best ways to build good credit. It's important to pay your bills on time, even if money is tight. Missing a payment can bring your credit score down, sometimes as much as 75 points.

Delinquent payments and collections have a major negative impact on a score. Of course, sometimes people forget to pay a bill. Or an unexpected event like a serious illness distracts them from paying bills by their due date. If this has happened to you only once or twice, and the late payment show up on your credit report, that can be explained to a creditor why it happened.

Paying bills late, however, can hurt your credit. Studies has shown that people who do not pay their bills on time are more likely to have difficulty repaying a loan than people who pay on time.

 

 

Here are some ideas for avoiding late payments.

 

Mark on a calendar when you must mail your bills each month so they will arrive before the due date.

Pay bills automatically out of your checking account every month. Gas, electric, telephone, and insurance companies often encourage their customers to pay their bills this way. If you use automatic payments, be sure you keep track of them in your checkbook.

If you take a trip out of town, make a plan for keeping your bills up to date. For example, you might ask a friend to pick up your mail and send you your bills so you can pay them while you are gone. You can also call your creditors before you leave town and arrange to pay your bills ahead of time.

Taking these steps will improve your credit over time. In general, creditors look for a two-year history of paying bills consistently on time to help establish good credit.

 

Credit Cards and how they can affect your credit

 

Pay off credit cards every month. If this is difficult to do, cut up the card so you can’t use it. Or put the card away until you pay it off. Then only use the card if you have an emergency or know you can pay the balance every month. A high outstanding balance can affect a score.

Remind yourself that credit cards are loans. Before you pull out your credit card, ask yourself, "Would I really take out a loan to buy this?"

Charge less than the maximum amount available on your credit card. Even if you make the payments on time, creditors may think that you are in too much debt.

Only apply for the credit you need. Every time you apply for credit, it appears on your credit report. If you apply often, creditors may be concerned that you are using too much credit. Even if you do not open the charge account, your application may raise a flag that you may be having cash-flow problems. Avoid applying for credit cards just for fun, or to get a "free" gift or a discount on a purchase. You need to know that the amount of your unused credit is an important factor in calculating your score. You should only apply for credit that you need.

Note: Whenever you apply for credit or a loan, by signing the application form, you are giving the creditor permission to order your credit report from a credit-reporting agency.

If you feel you can wisely use a credit card, choose one with a low interest rate and no (or very low) annual fees. Credit cards issued by department
stores or other stores usually charge higher interest rates than bank credit cards. You can use the Internet to shop for a card with low fees and low
interest rates. Compare the fees and rates of any offers you receive in the mail. Do not pay an up front fee to get a lower rate on a credit card. An up front fee is different from an annual fee and is often a scam.

Try to pay more than the minimum due each month. When you only pay the minimum, you end up paying a lot of money in interest charges. For example, assume you use a credit card with an 18 percent interest rate to buy a sofa for
$1,000. You only make the minimum payment of 2 percent each month (about $20). At that rate, it will take you about 90 months (or 7 1/2 years!) to pay off the couch, and it will end up costing you about $1,800 when you include interest charges.

 

Improving your credit score

Improving Your Credit Score

 

Use your credit card to establish good credit. Although you can get into debt trouble if you overuse credit cards, you can also use credit cards wisely to show that you can manage credit well. Just be sure to pay the credit cards
off every month or keep the balances very low.

 

Look for ways to cut your expenses or increase your income. This will give you more money to pay bills. For some ideas, see the section of this guide on budgeting.

Keep track of bills and past-due notices. Do not think that a debt has disappeared just because you may have stopped receiving notices. For example, doctors or hospitals sometimes stop sending bills to patients after several months. But if they turn the bill over to a collection agency, it will show up on your credit report. Unpaid student loans will also appear on your credit report and may prevent you from getting a loan. Check your credit report to see if you have any of these debts. Then take steps to start paying them before you apply for a new loan.

 

 

 

Other steps you can take

 

Make sure the information in your credit report is correct. If its not, dispute it with the credit agencies and/or with the creditor directly. Here are ways to dispute it.

Removing negative items on your credit reports has the biggest impact on your FICO score. Generally, negative items stay on your reports for seven years but you can utilize credit repair tactics to speed that process in most cases.

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