Steps to a 720 Credit Score

Your credit score will determine whether you will be approved for a mortgage loan, an education loan, car loan or many other forms of credit. If you are approved, the lower your credit score, the higher the rate you will pay to borrow that money. To reduce the percentage rate you are charged and increase your chances of approval, take steps to improve your credit rating.

Pay Bills on Time

For the active loans and line of credit that you have, make sure you are always on time paying those bills. Philip Tirone, a residential home financing expert and author of "7 Steps to a 720 Credit Score," says the best way to have a solid credit score is to have a healthy mix of credit and a solid payment history. "You have to prove to the bureaus you have the discipline to handle credit," he says. "The only way to do this is to have a proven track record." Create a payment system for yourself, such as paying bills as you receive them in the mail, or picking a date to write out checks. You can also use online bill pay and automatic drafts to ensure you pay the bills on time.

Manage your debt-to-income ratio

Aside from whether you make your payments on time, the amount of debt you incur will also impact your score. Keep your credit balances under 30 percent of your credit limit. If you have more debt than you can afford, it increases your chances of defaulting on the loans. The Fair Isaac Corporation (FICO), the company responsible for tabulating the most widely used credit score, advises consumers to "keep balances low on credit cards and other 'revolving credit.' High outstanding debt can affect a credit score."

Keep your credit cards open

Closing credit cards actually reduces the average age of your active accounts. Having older accounts with good payment history tells the credit bureaus that you are a better credit risk than someone who has a shorter credit history. The older your active accounts the better your credit score, as long as they are in good standing. FICO staff warns that "New accounts will lower your average account age, which will have a larger effect on your score if you don't have a lot of other credit information."

Don't let your credit history go dormant

Having no credit history does nothing for your credit score. Keep at least one active installment loan on your credit report. Car loans can do wonders for your credit report as long as they are paid on time. Installment loans can boost your credit by as much as 100 or more points.

Remove Errors from your report

In this day of identity theft, it's not uncommon to find information reported on your credit report that doesn't belong to you. There could also be erroneous information on your report such as accounts that have been paid off, but are not listed as such. Contact the credit bureaus, in writing, to have errors removed from your credit report.

Remove collection accounts

Instead of just paying off collection accounts, try to get them removed. Negotiate with the creditor to get a letter of deletion before paying a bill in collection. Paying off the collection account could re-age it and increase the length that it will be active on your report. This will negatively impact your score. Try to get it removed once it's been paid off.