12 Steps to a Better Credit Score
1) Check Your Files
The first step toward better credit should always be to ask for copies of your credit files from each of the major reference agencies, TransUnion, Experian, and Equifax. Carefully check the information they contain, making sure it's all correct, up to date, and actually applies to you. Even small mistakes can impact your credit rating, through no fault of your own, and you have the right to insist any errors are corrected.
2) Clear Minor Problems
When checking your files, you may come across minor problems from the past that could still be causing you difficulties. Sometimes, a creditor will not attempt to pursue a small debt such as an unpaid catalog order or similar because it can be cheaper for them to simply write it off. However, this will still show up in your credit history as a default, with the accompanying damage to your rating. If you find any of these small, easily overlooked debts, it's worth paying them off and making sure that this is reflected in your file.
3) Spread Your Debts
If you have several revolving credit accounts, it can make sense to spread your overall debt evenly across them. Accounts which are close to their borrowing limits are a negative factor for your credit rating. Try and manage your finances so that no individual account has higher than 30% utilization.
4) Raise Your Credit Limit
If you only have one or two accounts, and they're close to their max limits, it can be worth asking that your credit limit is raised. This lowers your account limit utilization which can benefit your overall score. However, be careful not to build up too large of a credit line. If you have access to a large credit line, new lenders may be reluctant to add to your chances of overextending yourself.
5) Be Crafty With Your Payments
Another way of reducing your account limit utilization is to make your payments before their due date. Ideally, you should clear your balance in full each month, but realistically, for most people, this isn't possible. However, it's important to note that your account utilization figure is calculated across the whole month. Making your payments early will mean your balance is lower for longer, which gives your rating a small but worthwhile boost.
6) Be Wary of Making Credit Applications
Each time you apply for credit, this is recorded on your file, and each entry of this type has a small but relevant impact on your score. Making too many applications in too short a time gives the appearance that you're desperate for credit, and this is a sign of risk for finance providers. Treat credit applications seriously, only applying for products you stand a chance of being approved for, to keep the damage to a minimum.
7) Don't Be Approved Too Often
Making too many credit applications is dangerous for another reason. If you're approved several times in quick succession, you may suddenly have access to a vastly increased credit line. As previously mentioned, having too much credit available can mean you enter a higher risk category for future finance, impacting everything from mortgage applications to insurance quotes.
8) Close Unused Accounts
If you've stopped using an old credit card for any reason, the chances are the account is still open even if it never sees any transactions. However, the credit limits on these accounts may still count towards your total possible debt, so it makes sense to close most of these old, dormant accounts, to reduce your overall debt exposure.
9) Keep Oldest Account Alive
However, having a positive history that goes back many years is an important part of your credit rating's calculation. Even though closing most of your dormant accounts is a good idea, it's advisable to keep your oldest one open to benefit from its valuable history, so long as the account remains in good standing.
10) Build a Positive History
You can also build extra positive information to add to your file by using credit in a responsible way. For example, if you apply for a credit card specifically aimed at people with poor credit, every time you make your monthly payment promptly this will be recorded as a plus point in your file. Over time, this positive information can start to outweigh the bad data that you've built up in the past. Just be sure to operate your account correctly, and payoff your balance in full every month to avoid costly interest charges on your spending.
11) Don't Send Signals of Risk
If at all possible try and avoid using credit facilities such as payday loans or other short-term lending products. In general terms, these services are mainly used by people with some level of financial problems, and it's best to keep such entries from your file as they'll leave a poor impression with the more mainstream lenders.
12) Keep on Top of Bills
Lastly, avoid adding any further negative entries to your file be making sure you run your finances responsibly. It's an excellent idea to set up automatic payments wherever possible so that you never overlook one by accident. If you're struggling with a poor credit rating, even minor misdemeanors such as making a payment a few days late can have a significant impact on your score, while on-time payments can help rebuild your rating as you go along.
Your credit score is the result of a complicated calculation that takes many factors into account. If you're struggling to be approved for finance, the situation may seem bleak, but taking care of the many small things that influence your rating can have a large positive effect overall.