Ways to Improve Your Credit in One Year

The FICO credit score is the most widely used credit score in the United States. The score measures how well you have managed your credit in the past and predicts how likely you are to default on loans in the future. Creditors look at your credit score when deciding whether to approve you for a loan and how much interest to charge. If you plan to take out a significant loan in the near future, such as a car loan or mortgage, improving your credit score can save you money on the loan.

Pay as Agreed

The single most heavily weighted factor in the FICO credit scoring algorithm is your payment history. Within this category, recent payments count more than payments further in the past, so by paying all of your bills on time over the year you can improve your credit score. Do not let your accounts go into collections. Collections occur when you have not paid your bills for a few months and the creditor turns the account over to a collections agency. If you let your creditors know that you are having a hard time with your bills, they may be willing to work with you to help you make minimum payments. However, if you wait until you've missed several payments, they usually cannot help you.

Check Your Report

The Fair Credit Reporting Act requires that each of the three credit bureaus--Experian, Equifax and TransUnion--provide you with a credit report once every 12 months, upon your request. When you request your own credit report, your credit score is not affected and you can check to make sure that all of the information on the report is accurate. If you find errors, you should write to both the credit bureau and the creditor reporting the information, explaining your dispute and enclosing copies (not originals) of any proof you have to support your claim. Credit reports are not flawless, and having a few incorrect pieces of information--such as a lower credit limit, late payments or even an account that does not belong to you--can lower your credit score. Credit bureaus must investigate your claims within 30 days. The sooner the errors are corrected on your report, the sooner your credit score will improve.

Limit Applications

Each time you apply for new credit, the creditor will pull your credit score and this inquiry will be noted on your score. Each of these inquires decreases your credit score. If you have a limited credit history, or have a large amount of inquiries, the negative impact on your credit score will be more severe. If you are trying to improve your credit score in one year, do not apply for any new credit unless absolutely necessary.

Spread Your Spending

Over the course of the year, focus on getting your debt-to-credit ratio below 35 percent on each of your credit cards. Having your overall debt-to-credit ratio below 35 percent is good, but making sure each card is below that limit is even better for your credit score. For example, if you have five cards with a $2,000 credit limit on each, and you had $1,800 on one card and no balance on the others, your total debt-to-credit ratio would be 18 percent. However, your card with the balance would have a debt-to-credit ratio of 90 percent. Spreading that $1,800 more evenly would improve your credit score.