Three steps to Improve your credit score

by Scott Anderson

Published on this site: April 7th, 2006 - See more articles from this month

If you want the best loan or credit card, make sure your credit score is the best it can be. Your credit score is like a "grade" based on information in your credit report that measures how likely you are to repay your debt. Learn to improve your credit score because a good credit score will get you better terms on your loan.

Their are many different credit scoring models out in the market today however the the most widely used score for big-ticket items like a house or car loan is a Fico score. This scoring system was developed by Fair, Isaac & Co. and is used by many lenders. You should review your credit report and score a couple months before applying for any loans so you can allow your self some time to correct any mistakes on your report and raise your score. Mistakes like a late payment on your credit report can take about 30 days to remove. You want to show the lender you are credit worthy so you can qualify for more loans and get better interest rates.

3 steps to better credit score

Pay your bills on time. It is always in your best interest to pay your bills on time to avoid any negative late payments on your credit report and to raise credit score. Late payments can only be reported as late or past due to the credit bureaus if you are more than 30 days late. Late or missed payments close to the time you apply for your loan can really hurt your score.

Pay off your credit card balances. On of the more heavily weighted factors in calculating your Fico score is your "credit to limit ratio". Ideally you should use no more than 20% of your available credit to increase credit score. So if you have a credit card with a $5000 limit try not to spend more than $1000 on that card. When you start to pass the 25% credit utilization mark and get more and more into debt you will start to see your credit score decrease. Also avoid closing unused credit cards or credit card with low or no balance since this will help lower your credit to limit ratio.

Correct any inaccuracies. Your credit score is calculated from the information on your credit report so make sure all the information is accurate while improving credit score. Review copies from all three credit reporting agencies Experian, Equifax and Transunion and correct any mistakes. The three credit bureaus might have slightly different information on you depending on what companies have reported. In some cases you may not see a particular account on all three credit reports because the company may not report to all three.

Currently all three bureaus offer credit reports and scores online. You can get a free copy of your credit report score here. The only way to obtain your FICO score is from myfico.com or Equifax. Transunion and Experian have their own scoring system that is comparable to FICO, so when improving your score it will also apply to your FICO.

Scott Anderson - CreditFamily.com was registered in 2002. It is now designed as a place to help consumers understand more about credit. Learn to improve credit score and credit repair tips.