Instruments for Credit Enhancement

Credit scores as reported by the Fair Isaac Corporation are snapshots of a borrower's ability to repay a loan at the moment the score is ordered. However, even a borrower with the worst possible credit score can use credit to enhance his profile and his score will improve over time when properly used. A variety of credit instruments exist to assist those who need help; the key is using these instruments responsibly.

Credit Cards

The easiest way to enhance your credit profile is through the responsible use of a credit card. Several programs and cards exist to build or rebuild your credit history. Before you apply for a card, check your credit score first, the website myFICO.com can help. Once you have your score, review your options. You may need to apply for a secured card first; secured cards require a deposit. Unsecured cards don't require a deposit, but are more difficult to get. FICO's website provides an impartial list of credit card providers with interest rate and fee information clearly listed.

Installment Loans

Installment loans are instruments that have are paid in full over a predetermined period of time. Interest may be fixed -- meaning, the payment never changes -- or adjustable. Adjustable loan payments float up or down depending on the direction interest rates go. Common installment loans are mortgages, auto loans and student loans. They are more difficult to secure than credit cards, but are instruments for enhancing your credit profile. Auto and student loans are easier to secure because lenders often have less stringent borrowing requirements. As a result, each can be a good springboard to a mortgage.

Utility Bills and Rent

Utility bills and rent payments are not considered credit and timely payments do not affect your FICO profile. However, defaulting on a utility or rent payment can negatively affect your credit if the account goes to a collection agency, because collectors do report your information to FICO. Consumers have the right to report timely rent and utility payments to FICO on their own using the self reporting tool. Be advised that a lender may not consider this information when you're applying for a loan.

Using Credit to Enhance Your Profile

The best way to enhance your credit is to manage loans responsibly. This means always paying your bill on time. If you can't pay it in full, make a plan to pay it in installments over as short a time as possible; not only will you save money, you will improve your score. Never apply for too many loans at once, and keep old credit lines open even if you're not using them. Keep your total credit balance below 50 percent of your available credit. The credit bureaus review all of these factors when calculating your score; higher scores are better because they equal lower interest rates and loan flexibility.