Things You'll Need:
- Copies of bills, paper and pen or spreadsheet, copies of your credit report and a calculator.
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Step 1
Understand how credit scores are determined.Your credit score is an objective numerical picture of the level of risk creditors can expect when lending you money. Fair, Isaac and Company (FICO) is one of three sources for these scores. Scores range from 300-850. Lower scores usually signal that you are a poor credit risk. In these cases, loans and credit are denied or extended at very high rates of interest to offset the risk. People with higher scores receive more favorable loan terms and interest rates.Several factors determine your credit score. Included among these are:Stability - the length of time you have held your job or lived in your home or apartment.Types of credit - a good balance can improve your score. An auto (closed) loan and a credit card (revolving) loan are examples of two types of credit.Credit history - how long you have had credit impacts your credit scores. A longer credit history translates to a stronger credit score.Credit balances - high balances hurt credit scores. Aim for credit card balances that are no more than 30 percent of your credit limit.Payment history - creditors like to see that you pay your bills on time.
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Step 2
Review your credit report and score.As the saying goes, "you cannot fix what you will not face." The next step in improving your credit score is making a thorough review of your credit report and, of course, knowing the score. When you review your credit report, look carefully for reporting errors and inaccurate information. Check your personal identifying information first. Be sure that your name, address, and social security number are correct. Now review your accounts:*Be sure that you have been given credit for all timely payments. If there are discrepancies, address them immediately with the appropriate creditor.*Be sure that every account listed is one that you are aware of and have authorized. Identity theft is a major destroyer of credit scores.
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Step 3
Adopt new credit management strategiesIf you want to improve your credit score, probably the most important thing you can do is pay down your debt. Using your pen and paper or spreadsheet you will want to map out your plan. Here are two of the most popular repayment strategies:*Choose your smallest debt and repay it quickly. You will be motivated by the satisfaction of retiring a debt. Stay on track - take the funds you used to pay on that debt and apply them to your next smallest debt and so on until your bills are paid.*Choose your highest interest debt and use every available dollar to pay it down. You may need to rework your budget or take a second job, but the rewards will be great. Paying off high interest debt saves thousands of dollars.*Choose to keep your paid off accounts open. Closing accounts means you will have less available credit, which can negatively impact your credit score.For an extra incentive on using this strategy, try the FICO score simulator at myfico.com. The site walks users through scenarios that let them see how paying down debt can impact credit scores.
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Step 4
Pay bills on timeIf you have trouble remembering to put the check in the mail, set up automatic payments or pay on-line. Don't feel confident about payments that don't involve writing a paper check? Devise a tickler system that gets the check in the mail every month, without fail.Avoid creating new billsUsing your credit cards or opening new accounts will not help your goal of improving your credit score. Credit inquiries, performed when you want to open new accounts, can negatively impact your credit score. Using your credit cards keeps balances high and credit scores low.
