If you have a good credit profile, it is more likely that you will be able to obtain favorable financing terms from lenders and get approved for new credit when you need it. Unfortunately for many of us, our credit profiles are damaged due to poor credit habits or as the result of losing a job and not having the means to service debt obligations. However, it is possible to repair a poor credit profile, and that process can start today.
Pay Bills on Time
The most important thing you can do to improve your credit profile is to make all your payments on time. If you have a history of missing payments or letting your accounts fall into past-due status, that has to stop. Being on time with payments represents 35 percent of your overall credit score, and paying on time reflects positively. Additionally, more recent activity carries more weight than older activity. So even though you may have a late payment last month, getting back on track and paying on time this month will do you good. Over time, the older late payment marks will count less toward your credit score than the newer, on-time payments.
Establish New Credit Lines
You do not want to go out and open new credit accounts for the sake of opening accounts, but increasing your available credit and establishing different types of credit can help your credit score. Ask for a credit line increase on your open accounts. This will increase your overall available credit limit and provided you do not run up your card bills, will lower your debt utilization ratio -- the amount of outstanding debt you have in proportion to your total credit limit. Lower debt utilization ratios are looked at favorably by the reporting bureaus. Additionally, the reporting agencies like to see an array of credit accounts. For instance, having a car loan, mortgage and a credit card is better than only having three credit card accounts.
Spread Credit Around
It is OK to use your credit cards, but if you are in the habit of only using one card for all your purchases and you find yourself coming close to your maximum limit each month, you may be hurting your credit profile, even if you pay down your balance in full each month. Avoid using more than 50 percent of your available credit on a single account at any given time. Although your overall debt utilization may be in check since you have zero balances on other cards, the bureaus also look at individual account usage. If you only have a single credit card, pay down your balance during the course of the billing cycle to keep 50 percent or more of your available credit limit free.
Dispute Negative and Inaccurate Items
Request a copy of your full credit report showing the details from all three reporting bureaus. When you review your report, you may find negative items, such as delinquent payment comments or even collections that are negatively affecting your credit score. Provided it is inaccurate, you should dispute any negative item or request that it be removed from your report. Even if the item is correct, you can sometimes have success in getting it removed by simply requesting to do so. Eliminating even one negative item can mean significant upside to your credit score.
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