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Step 1: Pay Your Bills on Time
Your payment history accounts for about 35% of your credit score more than any other factor. If you have a history of paying bills late, you need to start paying them on time. If you’ve missed a payment, get current and stay current. Each on-time payment updates the positive information on your credit report. The longer your history of paying bills on time, the higher that portion of your credit score.
Step 2: Review your credit report
*Errors do happen, so review your reports closely:
* Accounts that don’t belong to you
* Accounts with incorrect account date or credit limit listed
* Names and Social Security numbers that are not yours
* Addresses where you’ve never been
* Negative information, such as late payments, older than seven years. (Late payments can only legally stay on your credit report for seven years.)
Under the Fair Credit Reporting Act, the three national bureaus — Equifax, Experian and TransUnion — and your creditor are responsible for correcting errors on your report. The Federal Trade Commission (FTC) website has detailed steps for correcting errors, as well as a sample dispute letter. If you find accounts that are not yours and you suspect that you have been a victim of identity theft, you must place a fraud alert on your credit report, close those accounts and file a police report and FTC Complaint has to be lodged in
Step 3: Pay off your card balance
The amount of debt you have is heavily scrutinized for your score. Your total outstanding debt is taken into account, as well as the number of accounts with an outstanding balance and how much available credit has been used. Total reported debt is compared to total available credit to determine your debt-to-credit ratio. If those numbers are too close together, your credit score may be affected. Your best plan for reducing your debt is to plan to pay it off. While it may seem like a wise move, don’t consolidate debt onto a single low-interest card. Credit inquiries and opening new credit can lower your credit score, at least in the short term. Closing old cards with high credit limits can also lower your debt-to-credit ratio. If a new credit offer is too good to pass up, keep your total available credit amount high by not closing any old credit cards.
Step 4: Use the Credit
You should also check credit regularly for creditors to update your credit report with current, accurate information. While paying with cash or a debit card may be easier to budget, a cash-only lifestyle does little to improve your credit score. The easiest way to access credit is with a credit card, especially if you’re trying to improve your score to qualify for an installment loan. If you have an old credit card, start using it responsibly again. A long credit history is a positive determining factor for your credit score, so reactivating a dormant account can be beneficial. Although you need to make it a point to use credit regularly, only charge as much as you can pay. Keep your credit balances low so as not to hurt your debt-to-credit ratio.
Step 5: Monitor Your Report
Keeping a close eye on your credit report will help you see whether your hard work is paying off. Credit Monitoring allows you to monitor account activity. You will be notified immediately of any fraudulent activity. Credit bureaus and FICO offer credit monitoring services, which typically cost around $15 per month to monitor all three of your credit reports and scores. You can also use Credit Karma or other free sites equally well.
Step 6: When you’re shopping for a loan, do it early.
This is a hack due to the lag between the lenders and the 3 bureaus.
When you apply for a loan, the lender will “run your credit”—that is, send an inquiry to one of the credit rating agencies to find out how creditworthy you are. Too many inquiries like this can hurt your FICO score because it may indicate that you are trying to borrow money from too many different sources. Of course, you can generate a lot of inquiries by doing something completely reasonable—like shopping around for the best mortgage or auto loan by applying to several different lenders. The FICO scoring system is designed to allow this, considering the length of time over which a series of inquiries are made. Try to make all of your loan purchases within 30 days, so the inquiries are merged and it is clear to FICO that you are loan shopping.
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