Improving Your Credit Score

Improving your credit score significantly usually takes some time, but it is possible to do. Scoring systems vary by model, industry and the companies using them, but there are some basic recommendations you can follow to improve your score. This article discusses some of these basic recommendations and provides some insight into the information most commonly used to determine your credit-worthiness and level of risk when you apply for credit.

Information Commonly Used From Your Credit Report

Each credit scoring model uses different criteria, but according to the Federal Trade Commission, the following information is used most commonly. We’ve included an easy to use table for you to reference at the end of the article with these common factors and the recommendations you can follow to improve your score.

Payment History

Do you pay your bills on time? Do you have a good history of doing so? Your payment history is likely to be considered anytime you apply for credit. If your credit report shows delinquencies, collections, late payments, or bankruptcy, you can expect it to negatively impact your score.

Credit History

How long have you had credit? The length of time you’ve had credit is considered by many scoring systems, so if you’ve just begun to establish credit, your score may negatively reflect that. Trying to establish credit can be frustrating, because you need credit to get credit. However, factors like making payments on time, and maintaining low balances can often compensate for an insufficient credit history.

Credit Limit

How close to you are on your credit limits? Do you have any credit that is maxed out? Credit scoring systems commonly compare the amount of debt you have to the credit limits you have. If the amount of debt you have is creeping up toward your limits, expect it to negatively affect your score.

Number and Type of Accounts

How many credit accounts do you have, and what kind of accounts are they? The amount and type of accounts you have in your credit history are generally considered by most scoring models. Having sufficient credit history is important, but having too many accounts can negatively affect your score. What type of accounts you have is also important. Some scoring systems will consider certain types of accounts, such as financed loans to be a factor that can negatively impact your score.

New Credit Inquiries

Have you applied for new accounts lately? Any time you apply for a new credit account, an “inquiry” is made into your credit report. If several inquiries appear within a short time, many scoring models consider it to be a negative factor. This applies primarily to credit accounts you have applied for, which result in “hard-pulls” of your credit, not pre-screened offers you might receive, or general monitoring from reporting companies, which involve “soft-pulls.” The amount of inquiries that will negatively affect your score depends on both your credit situation and the creditor, so there is no magical number.

Even though creditors use different factors when assessing your credit-worthiness, for most of the scoring models, you can generally improve your credit score by:

· Paying all of your bills in a timely fashion

· Reducing outstanding balances on any accounts you have

· Steering clear of new debt