Credit reports and scores used to be mysterious to consumers who tried to improve them and wound up doing all the wrong things. According to the Experian website and MSN Money, the key is having a few credit accounts, using them with some regularity, keeping balances low--ideally below 10 percent of credit extended--and paying on time. There are specific steps you can take.
Order Your Credit Report
Many people avoid looking at their credit reports for fear of negative information. However, often credit reports contain erroneous information such as accounts mistakenly connected to you or paid debts marked not paid. Order the report and make sure it is accurate. Everyone is eligible for one free credit report per year from all three credit-reporting agencies. A free credit report is available from the Annual Credit Report website -- the only official website cited by the Federal Trade Commission (see Resources).
Correct Errors
If you have errors on your credit report, notify the reporting agency in writing why you think the item is inaccurate. Include copies of documents that support your position, such as notices of items paid in full. The reporting agencies should investigate the items in question within 30 days unless they deem them frivolous. Getting mistakes off your credit report should help.
Pay Bills on Time
Paying bills on time seems like a no-brainer, but having delinquent accounts and collections can do serious damage to your credit card. Begin today rebuilding credit by making payments on time. If you have bills in collections and they are already on your credit report, paying them now will not make as much difference as keeping other accounts current. If you can, set up automatic payments so you do not miss any more.
Manage Credit Cards
The objective with credit cards is to demonstrate responsible use of credit, which includes using cards, but keeping balances below 30 percent of credit available and paying on time. Common mistakes include having too many cards, closing unused cards, which has a negative, rather than positive impact on credit scores, and constantly shifting balances. However, if transferring balances to existing cards will give you a few cards with lower balances, it could be worth it.
Move Credit Card Debt
Credit reporting agencies treat personal installment loans from banks less harshly than they do credit card debt. You may be able to improve your credit rating by moving debt to a personal installment loan. Be careful of other means of eliminating debt. Avoid debt consolidation schemes and be wary of home equity loans that can put your house at risk.
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