Effective Tactics for Improving Your Credit
After you know what is in your credit report, the following are effective ways to improve your score. Focus on reducing debt balances, paying bills on time, clearing inaccuracies from your report, and avoiding new credit inquiries.
The simplest and easiest way to improve your credit is to pay your bills on time. If you pay thirty days late or more, it can cause your score to drop by as much as 100 points, says Gail Cunningham, vice president of business relations for Consumer Credit Counseling Service of Greater Dallas (CCCS Dallas). When Elliot was unable to pay his bills on time, he stopped paying them completely, which caused his score to drop considerably. If you are having trouble paying your bills, contact the creditor(s) directly to set up a payment plan(s) or reach out to a reputable credit counselor.
Your history of paying your bills carries the most weight in your FICO score. Any reported late payment often significantly lowers your score.
The FICO scoring formula assesses a reported late payment in three ways. First, the formula notes the date of the delinquency. Did the late payment occur three years ago or is it current? Second, the formula notes its severity, which means the number of months the payment is late. Third, the formula notes its frequency. How often has your credit report noted late payments? The more recently, severely, and frequently you are reported as late, the more likely your score will drop.
Public records are also another area often regarded as a major credit problem. This information includes bankruptcies, foreclosures, civil law suits, tax liens, or any other publicly recorded financial problem you may have encountered.
Want to know the fastest way to improve your credit? Pay down 50 percent or less of the credit card's limit. It changes the credit score positively and quickly, says Bettye Banks, senior vice president of education for Consumer Credit Counseling Service of Greater Dallas.
If your balance hovers near the top of your credit card limit, it signals you have maxed out your line of credit, and is regarded negatively by the lender. Staying below 30 percent of your credit line is smart. The amount(s) you owe carries the second-most weight on your credit score. Below are the common mistakes consumers make that you can avoid:
Avoid the minimum payment rut: Experts say paying the minimum due barely covers interest, not including the balance. Try to pay more than the minimum. Pay down cards with the highest interest rates and balances first.
Try not to charge it: Many believe if they pay off their card when the bill is due, it is reported as a $0 balance. Not always the case. Watts says each credit card balance on your credit report is usually the amount the card issuer last billed you — not the balance after your last payment was received. So, the best way to ensure your credit report shows low or zero balances is to pay down any high card balances a couple of months before you plan to apply for the loan. He also recommends avoiding using your card(s) between that time and the time you apply for the loan.
Don't move debt around: A stay-at-home mom of three, Kelly combined two credit card debts onto one card and closed out the other account. Many use this tactic, but it doesn't always work. Owing the same amount of debt but now having fewer accounts that are open may decrease your score.
Avoid opening a lot of new credit cards to increase your available credit: This can backfire and may hurt your score.
Bottom line: Pay down your balances; in turn, your score will improve.
If you are new to the credit world, don't start opening a lot of new accounts at once — it makes you look risky. When Elise was offered her first credit card, she fell victim to the power of charging. Soon, she had four department store cards, an electronic store card, two charge cards, and she kept applying for credit — until she started being declined. New accounts lower your average account age, which also affects your score. The length of your credit history is 15 percent of your score.
When you apply for a mortgage (or get prequalified), go to
When you shop interest rates for a loan, try to do it within a focused timeframe. Your credit score will usually show if you are shopping for a car loan or mortgage, and has built-in ways to protect your score even though many lenders may be pulling your credit report and score when you ask them for a quote, says Watts. This protection doesn't apply when you are applying for other types of credit such as credit cards or student loans. More good pointers for new credit: If you have had bad credit in the past, you can establish your credit by opening new accounts and paying them responsibly. Checking your credit score or report does not affect your score. New credit is counted as 10 percent of your credit score.
Mistakes happen. Check your credit report for errors. If you see inaccurate delinquencies, charges, accounts you didn't open, or other wrong information, contact each credit reporting agency to get the error(s) corrected. You can either mail the agencies or, in some instances, dispute it online. Give yourself thirty to ninety days for correcting inaccuracies. Below are contacts to dispute an error, request your credit score (credit reports do not come with scores), and fraud alert contacts.
Equifax: Dispute an item on your credit report at
Experian: To dispute an item on your report, report fraud, or order your report call 888-397-3742. The website is
TransUnion: To dispute an item on your credit report, call 800-916-8800 or visit
It is important to have a good mix of credit — revolving credit cards and installment loans — which helps your credit more (if you handle it responsibly) than someone without established credit. When you don't have credit, lenders see it as more of a risk because there is no past indicator of how you have dealt with credit in the past. When you are about to buy a new home, it is important to avoid new lines of credit. The types of credit you use counts as 10 percent of your credit score.
