Your credit score/FICO report can determine your eligibility for loans, what interest rate you pay for loans, and even whether you get a job to which you are applying. With every incentive to improve your score and nothing to lose, it should be a priority step in getting your financial life on track. Here are 5 steps to improve your credit score. Tip #1: Pull your report for free: The first step in fixing your credit is to get a handle on your current score. The Federal Trade Commission has an agreement with the Big Three credit reporting agencies to provide every U.S. citizen with a free credit report every 12 months. To get your free copy, go to the official Annual Credit Report Request Service Web site and follow instructions for requesting your report. Tip #2: Pay your bills on time: A full 35% of your FICO score is determined by how timely you pay your bills. If you have missed any payments in the past few years, it will likely help your score significantly to go back and fix your past-due status with the creditors involved. By paying your overdue bill, your creditors will remove these glitches from your report from each reporting agency. Hint: go back and pull your report again later to make sure that all three of the agencies have actually removed the problem from your records as promised. Tip #3: Get the balance (of credit types) right: 10% of your credit score reflects the specific diversity of types of debt you have and the credit lines you have available to you. Make sure you have the right balance of auto or home loan, department store cards, charge cards, and credit cards. This healthy mix shows potential creditors that you know how to handle different types of debt. Tip #4: Reduce your debt: Your debt-to-credit ratio is the ratio of the amount you owe versus the amount of credit extended to you. It determines a full 30% of your credit score. There are three ways to reduce your debt: 1. Make more money; 2. Put more of your current income toward paying off your debt; 3. Reduce the cost of your debt. One great way to reduce the cost of your debt is to transfer your current credit card balances to credit cards with lower interest rates. Doing this can save you $100s per month in debt payments if you have large credit card balances. Tip #5: Open more lines of credit: You can also improve your debt-to-credit ratio by actually increasing the amount of credit extended to you. The key here is to do so while avoiding actually using these new credit cards. To avoid using the cards extensively, make a purchase or two with them each month and then hide them so they are not readily accessible. Also: if you do open more lines of credit, do so over a period of a few months since having too much new credit can actually hurt your score. There are many straightforward ways to improve your credit score. So, pull your free report, assess your situation, and start taking steps toward a healthier financial life.
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