Your credit score is a reflection of how well you have managed credit in the past as well as a predictor of how well you will manage credit in the future. Having a low credit score can mean restricted access to credit and higher interest rates, among other things. Fortunately, there are many things you can do to increase your credit score and improve your chances of getting the best credit terms.
Remedy Any Errors
Information in your credit report is the basis for your credit score. If you have past due accounts or massive debts, it can lower your credit score. However, your credit score may also be low for reasons beyond your control. Bankrate.com cites a 2004 study showing that up to 80 percent of all credit reports contain an error. Bankrate suggests getting a copy of your credit report annually and checking it for errors. If you find an error, dispute it in writing, either online or through the mail, and provide copies of any supporting documentation you have.
Pay Bills on Time
Arlene Dang, manager of analytics for Experian, says on the company's website that payment history is the biggest factor driving your credit score. A history of paying late, not only on credit cards, but also on utility bills, car loans and mortgages, can lower your credit score significantly. To increase your credit score, make sure to pay all bills on time. Paying bills as soon as they arrive in the mail or setting up online payments are ways you can ensure you pay your bills before the due date. Even if you have gotten behind and made some late payments, catching up and then paying on time consistently will help boost your score, MyFICO.com says.
Keep Debt Down
How much you debt you have is the second-most important element of your credit score, according to MyFICO.com. A good way to boost your credit score is to keep the balances on your revolving credit, such as credit cards, low. Make sure to pay as much as you can toward your credit card bill each month, and pay off the balance entirely if you can afford to. Not only will this keep your debt ratio low, it will help you avoid paying interest charges on your debt.
Limit Your Accounts
Another factor in your credit score is how many open accounts you have. This is one area where the same criteria can have both positive and negative effects on your score. For example, the more accounts you have open, the higher your credit limit is, meaning your debt ratio will be lower, which is a positive indicator for your score. However, whenever you apply for a new credit card, your credit score takes a small hit, and constantly applying for new accounts is a red flag to creditors. To help build your score, keep two or three cards to use regularly. Resist the temptation to open a new store credit card every time the store is offering a discount or other incentive. On the other hand, don't close accounts that you are no longer using, because this can hurt your credit history, especially if you have had the cards for a long time. Instead, cut the card up or put it in a safe place where you don't have easy access.
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