Steps to Raise Your Credit Score

A credit score is a number lenders use to help them decide whether you qualify for credit and how much they should charge you for it. It offers a guideline for lenders to determine how much of a credit risk you are and whether you are likely to repay on time. The companies that report your credit score use a complicated mathematical system to calculate it. You increase your score by the way you handle credit.

Correct Credit History Inaccuracies

Carefully review your credit reports from each of the three major credit reporting agencies--Equifax, TransUnion and Experian--to check for inaccuracies. Immediately correct any errors that you find. Do this periodically, at least once a year.

Pay on Time

The most important way to raise your credit score is to make your payments on time. Payment history accounts for 35 percent of your score. This includes payments on all your open lines of credit--a mortgage, a student or car loan or bank, department store and gas station credit cards.

Set up automatic payments and make sure that the funds to cover them are in your account. Pay close attention to due dates, which sometimes change from month to month.

Keep Balances Low

Keep the balances on your credit cards as low as possible because amounts owed account for 30 percent of your score. This includes the number of accounts that hold balances, so limit those as well.

Limit the Number of Credit Applications

Every time you apply for a department store card to save 10 to 15 percent on your purchase, a credit inquiry is sent to a credit reporting agency. This also happens each time you apply for a car loan, credit card or bank line of credit. Demonstrate responsible borrowing behavior and boost your score by limiting the number of such applications.

Keep Old Credit Updated

The longer you have had credit--i.e., the older your credit history--the better for your credit score. Try to have at least two credit accounts of at least $2,500 each open for at least two years. If you already have two years or more of credit history, keep your older credit accounts active by using them every couple of months so the lender will keep sending updated information to the credit reporting agencies.