Credit history reports and credit scores are used by financial institutions, utilities, retail stores, landlords and others to determine the creditworthiness of individuals. Credit reports contain historical information on the types of credit used and the amounts owed. Credit scores rank individuals on their credit history. Individuals with bad credit histories can improve their credit scores through sacrifice and perseverance.
Verify the Credit Report
You are entitled to one free credit report per year from AnnualCreditReport.com, which is the online portal for the three national credit bureaus -- TransUnion, Equifax and Experian. Contact the credit bureau to report errors because they can negatively affect your credit score.
Understand the Credit Score
According to the U.S. Federal Reserve, credit scores are based on the following: timely bill payment history, outstanding debt balances, credit history length, new credit application frequency and types of credit accounts. Credit scoring models use statistical analysis to determine the creditworthiness of individuals.
Make Timely Payments
Paying the utility, water, rent, property tax and other bills on time improves your credit score. Set up automatic bill payments from your bank accounts. Synchronize the bill payments and automatic payroll deposits to avoid overdrawn balances in your accounts.
Manage Credit Card Balances
Pay down the credit card balances to zero to improve your credit score. As this might not be possible, spread out your purchases among several cards. In other words, do not max out one card while not using the others at all.
Stay Current
People are late on their bill payments for various reasons. Once the cash flow situation improves, however, settle the overdue accounts and stay current on your bills to improve your credit score.
Reduce Debt
High debt balances can negatively affect credit scores. Cut back on expenses, eliminate or reduce the use of credit cards and stick to a budget to gradually reduce the outstanding debt and improve your credit score.
Length of Credit History
The length of the credit history affects the credit score. Closing old accounts or opening new accounts might reduce the average account age, which can negatively affect your credit score. Keep the older accounts open, regardless of the interest rates.
Limit New Applications
Too many new credit applications over a short period of time can negatively affect credit scores. Apply for new accounts only as required, even if credit card companies and retail outlets are offering special interest rate promotions.
Debt Consolidation
You might be able to consolidate credit cards and other high-interest debt into a second mortgage on your home or a home equity line of credit. This might allow you to pay down your debt faster and improve your credit score.
Credit Counseling
Cash flow problems often make it difficult to make the minimum monthly payments. Registered credit counselors can help you restructure your debt and make manageable monthly payments to improve your credit score over time. The Federal Trade Commission advises people to watch out for scams and contact the local consumer protection agency before doing business with companies offering debt management services.
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