Credit Score Improvement Secrets

Your credit score is a three-digit number that may seem mysterious, but it is based on very specific formulas developed by Fair Isaac Corp. (FICO) and the TransUnion, Equifax and Experian credit bureaus. All of the formulas use credit report information to determine whether you are a good credit risk. You have the power to boost your score if you understand what goes into its calculation.

Focus on Two Areas

Credit score improvement is most efficient when you focus two specific areas. Credit scoring formulas incorporate a wide range of information, but some areas influence the final number more than others. Sixty-five percent of your score comes from just two areas, according to the MyFICO website. Thirty-five percent is your payment history and 30 percent is your debt load. Improve your score rapidly by catching up late accounts and always paying by the due date, along with paying down as much of your credit card debt as you can.

Keep Credit Cards Open

Closing credit cards when you pay them off does not help your credit score. Doing that can actually hurt you, because it negatively impacts the length of your credit history to get rid of an old account. You also eliminate the credit limit, which may hurt your ratio of available credit compared to how much you owe. Instead, leave unused accounts open and make occasional charges to keep them active. Your credit card companies cannot put fees on your account for non-use, according to the Board of Governors of the Federal Reserve System. However, they can close it out if you never use it.

Get a Loan

You cannot get the highest possible credit score without having different account types. MSN Money writer Liz Weston explains that credit cards, including gasoline and retail accounts, are revolving credit. You need to add installment loans to the mix. Not everyone wants to buy a home and get a mortgage, but you can take out a small personal loan or finance a car to improve this part of your score.

Fix Your Credit Reports

Your credit reports directly affect your credit score because they provide data for scoring calculations. The Federal Trade Commission advises that annualcreditreport.com gives you access to free reports once per year through the Internet, telephone or mail. Find mistakes that are hurting your score, like debt balances that are too high or payments falsely reported as late. You can fill out dispute forms on the credit bureau websites. The law makes them fix mistakes within 30 days, which quickly improves your score.