The main type of credit score that lenders use when evaluating an application for credit was developed by Fair Isaac Corporation and is generally abbreviated FICO. Individuals can raise their FICO credit scores by managing credit effectively across multiple areas that appear on the credit reports compiled by TransUnion, Equifax and Experian.
Consistent Payment History
Making payments on time and avoiding negative payment items, including collection accounts and bankruptcies, is the single most important way to raise a credit score. The formula used to calculate the credit score bases about 35 percent of the score on a person's payment history. Submit all payments by their due date and if a missed payment ever occurs, pay it as quickly as possible.
Low Outstanding Balances
Approximately 30 percent of an individual's credit score is based on the amount of money the individual owes, especially relative to the amount borrowed or the credit limit. People can pay down their credit card balances to raise this portion of the credit score. Liz Pulliam of MSN Money recommends never charging more than 30 percent of the credit limit, or for best results, keeping each balance under 10 percent of the card limit.
Long Credit History
Just by keeping accounts open and active, an individual can improve the 15 percent of the credit score that is based on the overall length of credit history. In addition to the overall length of credit history, the credit score also takes into account how long it has been since the account last posted any activity. Therefore, people who have old credit cards they rarely use should make a small purchase on the card every few months to keep the account active.
Little New Credit
About 10 percent of a score is based on new credit. People who refrain from applying for or opening new credit accounts for a time usually see their scores increase. This is because hard inquiries, which are when a creditor checks an applicant's credit report, lower the credit score. In addition, new accounts hurt the score as well. The negative effects of inquiries and new accounts decrease over time.
Many Types of Credit
About 10 percent of the credit score is based on types of credit, which include credit cards, retail store accounts, charge cards, student loans, auto loans and mortgages. Generally, a person should use at least one revolving account, such as a credit card, and at least one installment account, such as an auto loan.
Accurate Credit Report
If a person's credit report contains inaccurate negative information, it drags down the credit score. Consumers have a right to dispute information on their credit reports, which the credit bureaus then have to verify with the original source. The Federal Trade Commission website has an example of how to write a dispute letter.
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