Secrets To Improving Your Credit Score

May 4, 2018

There is a difference between your credit score and your credit report. Anyone who has ever had a credit card, or purchased a product like a car, phone or computer using monthly payments, has a credit report. The three main agencies in the United States that collect information about debt and compile credit reports are Equifax, Experian, and Transunion.

The three agencies collect information on all debts that you have currently outstanding as well as a list of all past debts you have held. Accounts are shown even if there is no longer an outstanding balance. Reports even include past inquiries into your credit history, so you can see who has been checking up on you. In many cases, the data can go back as much as 30 years, although generally negative information is removed after 7 years or 10 years for a chapter 7 bankruptcy.

Negative information on your report could include missed or late payments, or defaults on past debts. It could also include information on tax liens, orders to pay child support, and legal judgements.

By law, all three major credit reporting agencies have to provide you a free report once per year, so it is a good idea to check your report for errors that could affect your credit score.

How does my credit report affect me?

Credit reports can have an impact on you, even if you don’t plan to borrow money. Of course, if you do plan to borrow money, negative information in your credit report could cause you to pay more over time. A negative credit report tells potential lenders that you are a greater risk and they will charge you more in the form of extra fees and a higher interest rate to compensate then for their risk of not getting paid back in a timely manner.

But, your credit report can affect you in other ways. Insurance companies can use credit reports to help determine premiums, so you could end up paying more for car, home, or life insurance. Employers may use them to help determine hiring decisions. An landlords often check credit report before deciding if they want to lease you your next apartment.

What is a credit score?

There is so much information in a normal person’s credit report that it can be very time consuming to review the dozens of pages of information. Therefore, companies like Fair Isaac have created a streamlined method of determining the contents of your report, so potential lenders can look at a single number to determine your credit risk.

Fair Isaac created the FICO score which ranges from 300 to 850. The higher the number, the better your credit rating, the more likely it is that you will get the best rate on your next loan. Your FICO score takes into account over 20 different factors to determine your overall score.

How do I improve my credit score?

Improving your score really comes down to improving your overall creditworthiness. Creditors want to be paid back and want to be paid on time. If you live up to the promises you made in the original contract, you will be rewarded with positive information being added to your credit report which will improve your score.


Pay on time

Negative information includes a list of late payments and how late they were made as well as the amounts that were past due. Improve your score by creating a calendar of payments and, over time, getting into the habit of paying your bill on time.

Keep your outstanding debt balances low

Having credit available to you works in your favor for credit scores but having balances outstanding works against you. Pay your balances off but keep your cards open to show that you can manage the available credit that you have.


Keep available credit open

Available credit with no outstanding balances will help you even move if those accounts are open for more than 2 years.


Use a variety of credit

Utilizing a variety of credit types is also helpful; i.e. revolving, mortgage, installment. If your only credit history is a credit card, your score will be low even if you have a perfect payment history. Utilizing credit cards along with student loans, car loans, and mortgages can increase your score.


Minimize Frequency of new accounts in the last 6 months

Each new credit application you file decreases your score for the next 6 months, so space out the timing of your purchases to keep your score steady.