Tips on Improving Your Credit

According to Experian, the average credit score is 693. Typically, a score higher than 750 is considered to be pretty good and will nab you the best interest rates. Does yours fall short? The good news is that it doesn't take much to improve your credit. After six to 12 months of responsible behavior, you may see a significant improvement.

Make Prompt Payments

Your payment history accounts for 35 percent of your credit score and is an important factor that lenders use to determine your credit worthiness. Improve your credit by making all your payments on time. Delinquent payments will not only negatively affect your credit, but they may result in a significant increase in your interest rate. When possible, pay all bills well in advance. If you anticipate making late payments, call your lenders to explain why and to see if they can waive any fees or prevent your interest rate from increasing.

Decrease Your Debt

The amount of debt you owe accounts for 30 percent of your credit score. Improve your credit by decreasing your debt. Generally, your debt should be less than 30 percent of your total credit. Focus on paying down those cards that are maxed out by doubling payments. In addition, don't close out cards that have been paid off or open new cards to try and improve your debt ratio. A closed account may continue to affect your score. Instead, focus on paying down the balances. Once the balances are paid off, you can close any unused credit cards.

Dealing With Debt

If you anticipate not being able to make your payments in full, sit down and write up a budget. List your income, necessary expenses and unnecessary expenses. Find ways to cut back on unnecessary expenses. Find budgeting tools and resources at your local library. Or consider seeking advice from friends, family or a credit counselor. If you still cannot make it work, contact your lender about negotiating your payments. Remember, lenders want their money and will be much more willing to work with you if you can assure them that you are committed to repaying your debts.

Understand Your Credit Report

Improve your credit by understanding exactly how your credit score is calculated. In addition to your debt and payment history, the length of your credit history, new credit and types of credit used are also factors in determining your credit score. If you don't have much credit history, avoid opening more than one type of credit (such as a loan or card). High lender inquiries can also negatively affect your credit. When shopping around for a car loan or mortgage, shop within the span of about a month, so that lenders can see that the inquiries are related to one type of credit. Otherwise, a lender may incorrectly assume that you are opening up a number of loans or credit cards, resulting in your credit score taking a hit.

Each of the three credit bureaus, Experian, TransUnion and Equifax, offer one free credit report per year. Review your credit report every few months for errors. Dispute any incorrect information (see Resources).