Increasing a credit score can make the difference between being rejected for a loan and receiving a loan with a great interest rate. The two largest contributing factors to a credit score are payment history and amounts owed, which make up 65 percent of an individual's score. Efforts to increase a score should focus on these areas, although a few other strategies may help as well.
Pay on Time
Although it may take a while to have a significant effect on a credit score with blemishes, having a spotless payment history is always a plus for a credit score. Most credit accounts allow customers to set up automatic payments on their accounts, which should make it easy to never miss a payment. For those who have missed payments in the past, a year of on-time payments on the account should help a credit score significantly, according to Bankrate.com.
Use Less Credit
About 30 percent of a credit score is based on the amount of money the individual currently owes, in relationship to the amounts borrowed or the available credit line. Paying down balances on credit cards and other revolving accounts has an especially strong impact on this part of the credit score. Bankrate.com recommends keeping each card's balance at no more than 40 percent of its limit, although using less credit than that will increase a credit score even more. Although transferring balances from one card to another may achieve this result, the FICO website recommends paying off debt as the best way to increase credit scores.
Check Credit Report
Because credit scores are based entirely on the information contained on credit reports, individuals whose credit reports show incorrect information will see their credit scores artificially deflated. For example, someone may find that his credit report shows a bankruptcy when in reality he never filed, or even considered it. Smaller errors such as an inaccurate report of a missed payment can also have an effect. Credit bureaus provide people who receive their reports with information on how to dispute errors.
Additional Tips
Many other actions will help increase a credit score. For example, people should open and close accounts only when needed because opening a new account hurts a score in the short term and closing an account can increase the ratio of amount owed to available credit. Having a good mix of credit that includes revolving accounts and installment loans can help increase a credit score, although people should not take out lots of loans or credit cards just to try to increase this component. Another factor to consider is that maintaining accounts over a long period helps a credit score, so patience in this area will pay off.
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