How to Improve Your Credit Score

First, you can get a free copy of your credit report at www.annualcreditreport.com. This won't have any negative effect on your credit score. You won't get your credit score but you'll be able to identify any incorrect information.

Your credit score contains both positive and negative information.  Making payments on time will raise your score and making payments late will lower your score.

Your credit score considers 5 general categories:

  1. Payment history (about 35% of your score), to improve your score you should: pay your bills on time, if you've missed payments you need to get current and stay current.  If you have any accounts in collection, you'll need to pay them off.

  2. Amounts owed (about 30% of your score), to improve your score you should:  lower balances on credit cards, pay off debt rather than moving it around, Don't close unused credit cards, Don't open new credit cards to increase your available credit. 

  3. Length of credit history (about 15% of your score), don't  open many new accounts rapidly.  It will lower your average account age and will look risky if you are a new credit user.

  4. New credit and credit inquiries (about 10% of your score), if you are shopping for an auto loan or a mortgage do it within a short period of time (14 days). If you've had problems you should re-establish credit, use it responsibly and pay on time.  It's ok to check your own credit report and credit score without lowering your score.

  5. Types of credit in use (about 10% of your score), only open new accounts as needed, have credit cards but use them responsibly.

How fast does your credit score change?  Monthly!  Big changes won't occur from one month to the next, but over any given 3 month period about one person in four has a 20 point change in their credit score.

If you want more information, get this document from myfico.com.


> Balance transfers
If you want to use balance transfers, you won't want to close your old credit card.  It can shorten average account age.  

If you must, transfer the balance and leave your old card account open (but don't use it).  Then once you pay off the card you transferred the balance to (the newer one), you can close that account and go back to your old one.

> New credit when looking to buy a home
Avoid opening any new accounts when you're applying for a mortgage.  

The payments will count against the total amount of payment that you can afford and the double whammy is that it'll lower your credit score.

Save buying furniture and that new big screen TV until after the closing, your credit score will be pulled again within the last week or two before the closing to make sure things have remained the same.