Your credit score is based on information in your credit report. The FICO credit score, the standard for use by lenders, is based on five categories: payment history, balances on your accounts, the length of your credit history, how many types of credit you have used and how much new credit you have recently applied for. There is no instant fix for poor credit, but over time you can rebuild your score.
Make Your Payments on Time
Payment history makes up 35 percent of your credit score and takes into account the payments you make, whether they are on time or late and whether you have faithfully met your debt obligations in the past. If you have any accounts past due, get them current as quickly as possible so those companies will report your account as being current rather than delinquent. If you cannot make your payments as agreed, contact your creditors to ask if you can work out a revised payment schedule. Creditors are generally willing to work with you because they will lose money if they have to use a collections agency or if you default on the loan. Once you've gotten your accounts current, make sure you continue to make your payments on time. Recent information is weighted more heavily than past information, so you can start making a difference on your credit score right away.
Limit Inquiries on Your Credit Card
Each time a creditor pulls your credit report to determine whether to issue you a loan or a line of credit, an inquiry is added to your credit report. Ten percent of your credit score is based on recent credit inquiries, so having a number of applications will bring down your score. However, there are a few exceptions to how inquiries affect your score. If you check your own credit report, it does not count against you. You should check your credit report once a year to make sure there is no incorrect information on it. Also, if you are applying for either a home mortgage or a car loan, there is a special exception that minimizes the impact of shopping around for the best loan. As long as the inquiries are made in close proximity to one another, for the purposes of calculating your credit score, they will count as only one inquiry.
Leave Accounts Open
Closing an account will not erase negative information associated with that account. In fact, closing your accounts could actually hurt your credit score. First, in order to close an account, it must be paid off or you will be marked as defaulting. If the account is current and you close it, the company will not report that you are current on that account to the credit bureau. Even though you have no balance on the account, your credit score would still improve when the company reports the account as current. Second, when you close an account, you decrease your overall credit limit, which increases the percentage of your available credit that you are using and brings down your score.
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