Credit score problems are common, with 30 million Americans struggling with low scores, as of 2010, according to.Liz Pulliam Weston of MSN Money. However, credit records are constantly updated based on a person's recent financial activity, so scores improve as a person regains financial control. Certain actions raise the credit score more rapidly than other steps a consumer takes.
Definition
Every consumer who uses credit has three-digit credit scores compiled by companies like FICO, Experian, Equifax and TransUnion. FICO originated the credit score concept, and the other three companies are credit bureaus that provide financial reports on consumers to lenders when the consumer applies for credit. Scores are calculated based on data in each consumer's credit reports. Higher scores make it easier to get credit and help a person qualify for lower interest rates. Low scores interfere with the ability to get financing and subject borrowers to high subprime interest rates.
Features
Credit scores are based on certain types of information. For example, FICO bases 35 percent of its score on a person's payment history for loans, credit cards and other accounts; 30 percent on amounts owed on all accounts; 15 percent on the length of time the person has used credit; 10 percent on the different types of accounts used, such as revolving lines and installment loans; and 10 percent on the number of recently opened accounts.
Time Frame
Some actions improve a credit score quickly, while others take time. FICO states that timely payments raise the score. There is initial improvement, and the score continues to benefit as long as the person maintains a good record. Lower credit card balances raise the score, too. A person who can pay down the amounts quickly gets a fast benefit, but it takes time for some cardholders to bring down high debts. This still improves the score, but it takes many months. Weston recommends keeping balances below 30 percent of the available credit limit to maintain the progress.
Considerations
One way to quickly improve a credit score is to eliminate inaccurate negative items from the credit report. The Federal Trade Commission explains that consumers can check their reports for free every year through annualcreditreport.com. Harmful mistakes can be reported to the bureaus through their online dispute forms. They must investigate within 30 days and purge unverified data from the file, which brings up the score once the information is gone. Negative information that is accurate does not have to be eliminated.
Warning
Credit score improvement can quickly be undone by a few mistakes, FICO warns. For example, a consumer who is making prompt payments and maintaining modest balances can drop the score just by missing a few due dates or suddenly opening several new accounts.
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