How Can I Improve My Credit Score?

Why have a good credit score? Financial experts agree that having a good FICO credit score can grant you access to the best loan and interest rates, rebates, and premium credit cards. Not only can most Americans improve their credit scores, they should actively take steps to improve them.

Here are the score ranges, as currently standardized in the credit industry:

  • 300-550, poor credit
  • 550-620, sub-prime
  • 628-680, acceptable credit
  • 680-740, good credit
  • 740-850, excellent credit

Why Improve Your Score?

FICO scores are based on your projected ability to repay debt. They're based on your payment history, the types of credit you used, the amounts you owed, the length of credit history, and any new credit you undertake. Bankruptcy and foreclosures can drop your score by 100 points or more.

The Wall Street Journal reports that due to poor credit, you might find yourself paying interest on a car loan that increases the total cost by 25 percent. Consider this: a poor score may weigh negatively on future employment, applications for rental housing, and on mortgage rates. According to, having "good credit" over "sub-prime credit" can make a difference of more than 11 points on an auto loan and cut mortgage interest rates in half.

There are solid, proven methods for improving your score, but few will work if you don't have sufficient funds to live on and pay down existing debt. Once your finances stabilize, you'll need to use credit to improve your credit. That doesn't mean carrying a huge balance. On the contrary, using credit to buy works best if you retire your balances regularly. Your credit will rise without your having to pay excessive interest rates. Credit restoration takes time, so don't expect overnight results if you have serious black marks on your history.

Key Steps to Rebuild Your Credit History

1. Pay Your Bills
Late payments can affect about 35 percent of your total score. So the most important thing you can do is pay your bills on time every month. If you have trouble doing this, look into automatic payments from your checking account or using electronica bill-paying services from your bank.

2. Reduce Your Debt
How much you owe determines 30 percent of your credit score. Start by paying off your oldest debt and dedicate yourself to paying off affordable bills as soon as they arrive. Pay the accounts with the highest interest rates first. If you cannot pay down your debt, seek credit counseling to come up with a payment plan, including consolidation or installment loans.

3. What About Collections?
Deal immediately with any charge-off, liens, and anything sent to collections, but BE CAREFUL with older accounts. A five-year-old collection for a bounced check to the pizza place is practically off the radar of credit bureaus. However, a five-year-old collection with a new payment goes to the front of the line and makes a much bigger impact on the scoring system. Remember: a collection report -- even if paid off -- stays on your credit history for seven years. When dealing with any collection agency, agree to pay when you get -- in writing -- an agreement from them to remove the collection from your report altogether.

2. Routinely Check Your Credit
Credit reports may include inaccurate information. But it's up to you to correct inaccuracies. Be sure there are no payments listed as late if they were paid on time. Check how much the reports say you owe. If information is incorrect, inform the credit bureau immediately. If you're applying for a mortgage and have some inaccuracies, your lender may be able to get your report corrected much more quickly than you can by using the services of a rapid re-scorer -- it should only take a day or two. If you have time to fix the problems yourself, send your correction and supporting proof to all three major bureaus (Experien, Equifax and Transunion) as well as the original creditor.

3. Choose Automatic Payment Options
Since paying bills on time plays such a large role in credit scoring, link your creditors to auto-bill-pay features with your bank. This can be especially useful for paying down revolving credit.

4. Keep Credit Cards at the 20/10 Ratio
A rule of thumb for success: Don't ever let your revolving credit debt exceed 20 percent of your annual post-taxation income and don't let outstanding payments exceed 10 percent of your monthly pay.

Be patient. Rein in your spending and use credit cards wisely.

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