How do I improve my credit?

The steps you take to improve your credit score depend on your current credit score and credit history. A person with poor credit or no credit history would take a different route than someone with very good credit who aims to make it excellent.

Here are some basic practices that everyone should follow:

1. No late payments- Pay your bills on time. Your payment history counts for 35% of your FICO score. Being one day late on a  payment won’t harm your credit score (you have to be  30-days late,  for it to ding your score), but it can inflict financial harm through a late-fee and a hike in your interest rate.

2. Control your credit utilization- Try to pay your bills in full each month, if you can, but make sure to keep the running balances low. 30% of your FICO score is based on your credit utilization, the size of the debt you carry compared, as a percentage, to the size of the credit line. You should aim to keep your utilization below 30% of the credit line, to protect your score. Of course, it’s best to pay in full each month, to save on interest costs.

3. Keep older accounts open- The length of positive credit history counts for about 15% of your score. The  longer you maintain accounts in good standing, the better your score  will be. It demonstrates that you are able to make a long-term commitment to a  creditor and are consistently responsible about making your payments.  I respectfully disagree with Karen. Don’t close old accounts that you don’t use. Use them occasionally and keep them current, to best build your score.

4. Keep a variety of accounts-  The mix of types of credit accounts counts for approximately 10% of your score. Having  several different types of credit, such as credit cards, consumer loans,  and secured debt, (auto or home loan)  has have a positive influence on your credit score.  Having too much of one type of credit can have a negative impact.

5. Don’t open a large number of accounts at once- The number of new credit applications you’ve completed recently accounts for about 10% of your score. Applying for too much new credit  in a short time period makes indicates that you could be credit risk, as you may be desperately trying to keep your head above water.

6. Shop for credit wisely- Shopping around is the smartest way to find the best deal for a home, auto loan, or student loan. Each inquiry you make, when applying for a these loans account is reported to the credit bureaus and will appear on your report. However, separate inquiries made for the same product are typically counted against your score only once, as long as they are made within a short window. The length of the window you’re given to shop around depends on the scoring model, but it usually runs from 14 to 45 days. I recommend trying to complete your comparison shopping in a two week window.

7. Review your credit report regularly- Avoid having your credit harmed by inaccurate information; review your credit report on a recurring basis. You can get a free copy of your credit report at www.AnnualCreditReport.com. You’re entitled to one free report from each of the three main credit bureaus every 12 months. I recommend that you stagger your free requests, getting a freebie from one of the bureaus every four months. Any time you see inaccurate information, take the proper steps to dispute it and have it removed.

A person with either a limited credit history, a bad credit history, or no credit history needs to take some other steps to build a good credit score. Such a person may need to apply for a secured credit card or find someone willing to co-sign (the substantial risks to the co-signer is a separate topic).