10 Ways To Improve Your Credit Report

By James E. McWhinney AAA

The ability to access credit can make life a lot simpler. From everyday items such as gas and groceries to big-ticket purchases such as cars and houses, most people rely on some form of credit. To make sure you can get that credit when you need it, it’s important to have a good credit report. Check yours regularly (see Top Places To Get A Free Credit Score or Report). If your credit rating could use a little boost, here are 10 tips that will help you improve your score.

1. Fix the Facts

There are three major national credit bureaus: Equifax, Experian and TransUnion. Credit card issuers, banks and other entities rely on reports created by these bureaus to help them judge the creditworthiness of potential borrowers. Making sure that the information the credit bureaus have about you is accurate and complete is an important step in any effort to improve your credit score.

You can obtain a free copy of your credit report from each bureau once a year at annualcreditreport.com. It is worth your time and effort to review the information and contact the bureaus to correct any discrepancies. To cover the year, space out your requests so that you don't get all three reports at the same time.

2. Pay Your Debts on Time

A consistent history of on-time payments helps boost your credit score. If you have credit card balances, a car payment, student loans or a mortgage, be sure to make your payments on time. Missing enough payments that your account is turned over to a collection agency is a sure way to limit your access to affordable credit – or make it cost more than it should. Remember, the better your credit score, the lower the interest rate you are likely to be offered.

3. Pay Off Your Credit Cards

Just because you have credit doesn’t mean you have to use it all the time. If you can, pay the full balance on your credit cards and then go a month without using the cards. This will not only boost your credit score, but by paying off your balance, you avoid paying interest and save money. If you pay your balance in full each month but use the card every month, it will appear to potential creditors that you carry a balance from month to month.

4. Use Your Cards in Moderation

Experts have long said that using 30% or less of your available credit is a good way to keep your credit score high. More recently, that recommendation has been reduced to 20%. So if you have a credit card that has a $1,000 maximum balance, keeping the balance under $200 will be good for your score.

6. Raise Your Credit Limit

If 20% of your credit limit doesn’t give you enough credit to meet your monthly needs, call the credit card issuer and ask to increase your limit. A higher limit will let you spend more while keeping your usage ratio low. Alternately, you can keep smaller balances on multiple cards to maintain the desired ratio.

5. Don’t Open Too Many Accounts

Credit cards are easy to open. Almost every store has a quick, convenient way to get you a new card. Attractive incentives, such as big discounts on purchases, add to the temptation to open new accounts. If you shop in that store often, it may be worth getting its card. Otherwise, resist the urge.

The reason having many open credit cards can hurt your credit score is that lenders worry about whether you will be able to meet your financial obligations should you suddenly max out all the credit on your cards. What's more, each time you apply for credit, the potential lender will check your score. Each time your credit is checked, other potential lenders worry about the additional debt that you may be taking on. So don't apply for cards often, if you want to raise your credit score.

7. Vary Your Credit

There are two major categories of credit: revolving credit and installment credit. Revolving credit refers to credit cards. Installment credit refers to loans, such as mortgages, car payments and student loans. Demonstrating that you can obtain and responsibly use both types of credit will help raise your credit score.

8. Hold on to Older Cards

Having a long history of reliable payments is a good indicator that you are a responsible credit user. If you have too many credit cards and decide to close a few accounts, close the newest ones first. And be sure to use your older cards periodically to keep your account looking active.

9. Let Time Pass

If out-of-control credit card spending – or other kinds of bad luck and trouble, such as unexpected illness or a job loss – caused you to declare bankruptcy, it can take seven, or even 10, years for the bankruptcy to stop showing up on your credit report. If you want to buy a house or get a more attractive interest rate on your next loan, you may want to let some time pass. Once that bankruptcy is removed from your report, your credit score will improve.

10. Get a Secured Card

While you are waiting, you can get credit and help improve your score by obtaining a secured credit card. This means you place a cash deposit with the card issuer and use that cash as collateral to obtain credit. Making steady, on-time payments to your secured credit card account will help you rebuild your credit.

The Bottom Line

Even the most affluent or thrifty among us often prefer to use credit cards to make purchases rather than carrying cash. Taking steps to keep your credit score in good order will serve you well at every stage of your life. If you hit hard times, a little repair work will help you get your score back on track.

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