What Can I Do to Better My Credit?

Improving your credit is one of the smartest things you can do to help your financial well-being. Poor credit can cost a person tens of thousands of dollars in finance charges over the course of a lifetime. Some people with poor credit also have excessive debt, forcing them to make only the minimum payments on some accounts. That leads to years of debt. For example, Utah State University reports that it takes 15 years and 6 months to pay off a $3,000 credit card debt if you make minimum payments of $50, with an interest rate of 18.9 percent. Total finance charges for the 15-plus years: $6,279.85.

Improvement

The best way to improve credit is simply to pay bills on time -- month after month -- while keeping balances low on credit cards and other revolving debt. Over time, that consistency helps increase credit scores. Credit scores range from 350 to 850. Scores of 720 and up are excellent, and usually lead to the lowest interest rates available on credit cards and other loans. Scores below 620 are poor, and usually lead to higher interest rates.

Timing

It can take two to three years to significantly improve a credit score by paying bills on time and keeping balances low. However, Bankrate reports that people seeking faster improvement should immediately pay down current revolving debt balances as low as possible. Credit cards charged to their limit hurt credit scores. Creditors like seeing people with large credit limits but low balances, because that suggests sound financial management.

Reports

Correcting mistakes on credit reports also improves credit. The Fair Credit Reporting Act, a federal law, makes credit reports available for free through AnnualCreditReport.com. The site offers every consumer one free report from each of the three credit reporting agencies -- TransUnion, Equifax and TransUnion. Negative information on credit reports, such as late payments, charge-offs and collection accounts, causes poor credit scores. The Federal Trade Commission maintains negative information on credit reports can remain on file for seven years in most cases, and 10 years for bankruptcy. However, exceptions are possible if the information is incorrect or a debt collector or creditor voluntarily removes the information.

Repair

Some people seeking to better their credit ask creditors to remove a late payment or two as a courtesy, or they offer to pay an old charge-off or collection account in exchange for removal of the information. Clearing such information from your credit reports can lead to an immediate increase in your credit scores. Others improve credit by opening new accounts, such as credit cards or installment loans. They pay the new accounts on time every month and keep balances low on the revolving accounts.