Improving Your Credit Score

Can I improve My Credit Score? The first and most essential trick to improving your credit score is insuring the accuracy of each of your credit reports. Only after you are certain of their accuracy should you begin planning other steps to improving your credit score.

Your credit score can be improved and maintained at its peak... if you know how to do it. I recommend reading Credit Score Basics in conjunction with this article.

Scoring models such as FICO (Fair Isaac scoring model) generally evaluate the following types of information in your credit report and are weighted as suggested by the percent shown:

On Time Payment - 35%

Have you paid your bills on time? Payment history typically is a significant factor. Your score will be affected negatively if you have paid bills late, had an account referred to collections, had a repossession, or declared bankruptcy. The age of the positive or negative comment is also important in this factor. For example, a 90 day late payment 3 years ago may be less important than a 30 day late last month. The more current the factor, the greater the weight.

Amount Owed Versus Capacity - 30%

What is your outstanding debt? Many scoring models evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, that is likely to have a negative effect on your score. Authorities suggest 30%-60% is desirable by creditors. Maintaining a low balance on multiple cards is better than high balances on one... but don't run out for more cards to "even out" balances just before applying for a loan. Recent applications cost you as shown in below. You should note that a few creditors will use highest balance as your credit limit. For example if you have a $10,000 limit and have used only $1000, your limit will show not 10% but 100% utilization.

Length Of Credit History - 15%

How long is your credit history? Generally, models consider the length of your credit track record. A recently opened account will have less weight than an account 3-4 years old. An insufficient credit history may have a negative effect on your score, but that can be offset by other factors, such as timely payments and low balances. If you are going to close an account, try to maintain the oldest accounts as age of account matters.

New Credit Accounts - 10%

Have you applied for new credit recently? Many scoring models consider recency. Similarly, if you have applied for too many new accounts recently or had to many recent inquiries, that may negatively affect your score. However, not all inquiries are counted. Inquiries by creditors who are monitoring your account or looking at credit reports to make "pre-screened" credit offers are not counted.

Types Of Credit In Use - 10%

How many and what types of credit accounts do you have? Although it is generally good to have established credit accounts, too many credit card accounts may have a negative effect on your score. In addition, many models consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies (rather than a bank) may negatively affect your credit score. There is also a hierarchy of debt beginning with a mortgage. This is followed by a secured debt such as a car, then unsecured debt (credit cards), then revolving charge cards and gasoline cards.

Most Important Issues

It's likely to take some time to improve your score significantly. However, the most important issues to improved credit score are:

accuracy of report
on time payments
paying down outstanding balances
not taking on new debt.

The Final Analysis

You should also be aware that the Fair Credit Reporting Act (FCRA) is designed to promote accuracy and ensure the privacy of the information used in consumer credit reports. It is enforced by the Federal Trade Commission. Recent amendments to the Act expand your rights and place additional requirements on Credit Reporting Agencies as well as businesses that supply information about you to these agencies. Additionally, if you tell an information provider in writing that you dispute an item, a notice of your dispute must be included anytime the information provider reports the item to the reporting agency. All of this can affect your credit score in your favor. Note: the operative word is "CAN".