8 Steps to Improve Your Credit Score

In order to improve your credit score, you must first understand what is a credit score and the underlying factors that go into a credit score. These factors have different weights attached to each with some factors being more significant than others. These factors and weights are:

1. Payment History 35%
2. Amount Owed 30%
3. Credit History 15%
4. Credit Mix 10%
5. New Credit 10%

By understanding what is actually involved in your credit score, you can create a better plan of attack to improve your credit score.

1. Credit Utilization

The first step is to reduce your credit utilization. Credit utilization is just that: how much of your available credit you use. In general, you should keep your credit utilization to no more than 25% of what’s available to you. Put simply, if your credit card limit is $1,000, your balance on that card should be no greater than $250. This ratio is true for all your revolving credit accounts. It’s easier said than done but having better credit utilization ratios will improve your credit score drastically.

2. Credit Limits

Take a look at your existing cards for credit limits. Don’t use cards that don’t report credit limits. If your card does not specify a limit, the credit reporting bureaus will assume that the limit is the highest balance ever carried on the card. The result is a possible overestimation of how much credit you are using and that can mean a lower credit score.

3. Authorized Users

Becoming an authorized user on someone else’s credit card will benefit your credit rating. All the positive ratings for that account will be automatically added to your credit score. If you can, in fact, get added to someone else’s credit account in good standing, try to get added to one that’s been established for a while as a long credit history will also improve your score. Just keep in mind the credit history for the credit card for any derogatory remarks or if there’s an existing high credit utilization since it can do more harm than good!

4. Forgiveness

If you’ve had payment problems in the past but are currently in good standing, ask your creditor to remove the negative notations on your account. Given that your account is now current, they might just do it.

5. Student Loans

If you’ve missed some of your student loan payments or even if you’ve defaulted, you can get your Sallie-Mae loan accounts back on track with just 12 consecutive payments. The message here is that a payment arrangement is always better than a charge-off a default.

6. Correct Errors

Be vigilant in periodically reviewing your credit reports and report any errors to the credit bureau that provided the report. Under the law, you get one free report from each of the three bureaus each year. Visit www.annualreports.com to request your free reports.

7. Dispute Negative Entries

The older a debt, the more difficult it will be to verify and, therefore, more likely to be removed by the credit reporting bureaus. Review your credit reports and use the form on the websites of the three major credit reporting bureaus (Experian, Equifax, and TransUnion) to submit an official dispute. You might just get some old negative notations eliminated.

8. Avoid Closing Accounts

Closing credit card accounts can reduce your creditworthiness and as a result, may increase your credit utilization ratio. If you must close accounts, close only newer accounts. Older accounts reflect better on your credit score.
The best thing you can do for your credit score is to protect it from the start. Unfortunately, unemployment due to losing your job and other crises can impact whether or not you can pay your bills. If that happens, stay focused and keep your end game—an improved credit score—in mind