Tips to Increase a Credit Score

Your FICO score affects the interest rate you'll receive on auto loans and mortgage loans. If you have a bad score, you may not qualify for such loans. Fortunately, there are ways to reverse bad credit and improve your credit score. The key is recognizing the value of maintaining a high score and making smart credit decisions.

Check Your Credit Report Annually

Credit report errors are common and they can affect anyone. Creditors may inadvertently place someone's negative information on your credit report, or someone can steal your identity and open accounts in your name. Failure to check your report annually can result in a lower credit score and higher rates on loans. Make a habit of ordering your report once or twice a year. Thoroughly review the report and look for anything unusual, such as unknown accounts or reporting errors. Contact the credit bureaus and the reporting creditors to dispute and remove errors.

Sign Up for Automated Bill-Pay

Paying your creditors on time is another key element to increasing your credit score. Late payments or missed payments knock points off your FICO score, and it can take months to recover these points. Do everything in your power to pay your bills on time each month. If necessary, write your due dates on a calendar, or pay statements upon receipt to prevent late payments. Another way to avoid late payments is to sign up for automated bill-pay, wherein creditors automatically withdraw payments from your bank on a specified day each month.

Lower Debts

Unfortunately, paying your bills on time each month isn't enough to maintain a high rating. Your debt-to-income ratio affects your credit rating, and increasing your score involves curtailing spending and reducing your debt. There are several ways to decrease your debt. To begin, you'll need to calculate your disposable income (subtract your total expenditures from your monthly income). Instead of spending your disposable income on clothing, entertainment or other indulgences, use this money to pay off your debts. Increasing your income by working overtime or finding a second job also provides money to reduce your debts.