Understanding Your Credit Report
How To Improve Your Credit Scores
Techniques for Better Credit Reports and ScoresLenders analyze your credit scores to determine whether or not to approve a home mortage, a car purchase and nearly all other types of loans.
Before lending you money, creditors want to determine how much of a risk you arein other words, how likely you are to repay the money they loan you. Credit scores help them do that, and the higher your score, the less risk they feel you'll be.
Most increases to your credit scores take place over time and require an ongoing effort from you. The only true credit score quick-fixes are to pay down debt and to successfully dispute negative information on a credit report.
Credit scoring software looks at five areas of your credit reports:
- Your Payment History
- Amounts You Owe
- Length of Your Credit History
- Types of Credit Used
- Your New Credit
The article How Your Credit Score is Calculated explains what's included in each of the five categories.
You can improve your credit scores by taking a close look at your credit reports and charting a plan of action to improve them.
Improve Your Payment History
- Always pay your bills on time. Late payments play a major role in driving down your score.
- If you have past-due bills now, get current and stay that way.
- Contact your creditors as soon as you know you will have a problem paying bills on time. Try to work out a payment arrangement and negotiate with them to keep at least a portion of the late notations off of your credit reports.
- If your situation is serious, see a legitimate, non profit credit counselor. Avoid the scam artists who promise a quick reversal of your credit problems.
Keep Debt to a Minimum
- Keep your credit card balances low. High debt-to-credit-limit ratios drive your scores down.
- Pay off debt, don't move it around. Owing the same amounts, but having fewer open accounts, can lower your score if you max out the accounts involved.
- Don't close unused accounts, because zero balance might help your score.
- Don't open new accounts that you don't need as a quickie approach to altering your debt-to-credit-limit ratios. That can lower your score.
Length of Your Credit History
- Time is the only thing that can improve this aspect of your scores, but you can manage it wisely:
- Don't open several new accounts in a short period, especially if your credit history is less than three years. Adding accounts too rapidly sends up a red flag that you might not be able to handle your credit responsibly.
Manage New Credit Wisely
- Several credit inquiries during a short period means you are attempting to open multiple new accounts, and that lowers your credit scores.
- Credit scoring software usually recognizes when you are shopping for a single loan within a short period of time, such as a home loan. If multiple inquiries are necessary, have them pulled as closely together as possible.
- Checking your own credit report does not affect your scores.
- Do try to open a few new accounts if you've had credit problems in the past. Pay them on time and don't max out your credit limits.
The Types of Credit You Use
- A mixture of credit cards and installment loans, loans with fixed payments, can help raise your score if you manage the credit cards responsibly.
- Having many installment loans can lower your scores since payments remain the same until balances are paid in full.
- Don't open new accounts just to have several accounts or to attempt a better mix of credit.
- Closing an account doesn't remove it from your report. It may still be considered for scoring purposes.
More About Credit Reports