How To Improve Your Credit Score

So you have bad credit. Time to move on in the right direction, and follow these steps carefully.

Never miss a payment. One of the best ways to keep your credit clean is to have automatic checking account withdrawals for mortgage bills. Just make sure that there are enough funds in your checking account to cover all your automatic drafts. Approach your bill paying like a business and take it seriously.

Use credit… Believe it or not, having available credit is actually a positive factor, along with paying your credit card bills on time. Get credit cards and keep them for a long period of time. You don’t have to hold a balance – paying off credit card balances every month still gives you positive payment history.

…but not too much. If you want to apply for a mortgage within the next year, try to reduce any high debt load, and don’t owe more than 50% of your credit limit on any one credit card. For example, if your credit card limit is $10,000, reduce your debt to at least under $5000 and preferably under $3,000.

Clean up credit errors. If you have any errors on your credit reports, you need to dispute the information in order to clear your record. This is the toughest task, because it requires some letter writing (some can be done online at the credit bureau websites) and perhaps phone calls to both the credit bureau and the organization that reported the information. The difficulty in cleaning up errors is why so many people dread having their “identities” stolen. You can pay to have a “rapid rescore” if you have documentation proving errors on your credit report.

Don’t open new credit lines before taking out a loan. Every time you open a new credit line, your credit score will suffer slightly. Hold off on getting new credit cards until after you buy that next house or refinance.

Resolve to do better. Ok, so your credit report has a few delinquent payments that you wished never happened. What do you do? Besides resolving to never miss any more payments, you must pay everything on time for the next year before your credit will show improvement.

The Federal Trade Commission warns against enlisting companies who promise to improve your credit score by removing missed payments. Correct data cannot be removed from your credit report.