And while it’s true that there are many factors that can lower your credit score, there are also many things that can be done to improve credit scores across the board. The first step is to understand how credit scores are calculated.

Once you have this information, you can take steps to improve the areas of your credit file that are causing your low scores.

How to Improve Credit Score: Not All Scores are Created Equal

When a lender pulls your credit score, there are many variables that come into play. Some lenders will pull your credit score from all three credit bureaus – Experian, Equifax, and TransUnion – but some lenders only get scores from one bureau. Still others will take a look at your credit report and use their own in-house method in conjunction with your credit score.

While all three credit bureaus may issue a FICO score, the scores are very seldom, if ever, the same. This is because each bureau uses its own methods for calculation, and in several instances, information in your credit report may not be consistent between each credit bureau.

For example, if one of your credit card companies only reports to one bureau (say, Equifax), then the information about that credit card will only be available on a single credit report, and will only affect your credit score for that one report.

In general, you have little control over which bureau or bureaus your creditors use to report your payment history. What this means for the average consumer is that there is a lot of confusion over which credit score is being used and how it was calculated.

When you are denied credit by a lender, you have the right to request a free copy of your credit report from the bureau that supplied that report to the lender. However, you also have the right to request a copy of your credit report for free at least once every 12 months – so pull your credit report before you apply for credit.

How to Improve Credit Score: Tips & Advice

Once you have a copy of your credit reports, you can begin to take action to improve your credit scores across the board.   Three of the fastest ways to increase your credit scores (and your chances getting additional credit):

1. Dispute inaccurate information.

Is there a credit card or loan that is listed with a late payment when you have proof that the payment was made on time? Are there credit cards or accounts listed that aren’t yours? Are there accounts listed as open when they’ve been paid off? Go line by line to ensure that all the information on your report is accurate, and dispute any information that is not.

2. Address any problem areas.

If you have negative information on your credit report that is accurate, now is the time to take care of those issues. Call up the lender to make payment arrangements and see if they will update your credit report to show you as current. Pay off any past-due or overdue amounts as quickly as possible. Try to keep your overall balances low when compared to your total credit limits.

3. Apply at the right time.

As you can see in the chart below, your amount of debt makes up roughly 30% of your FICO score. If you are able to pay down some of your balances (even temporarily), you should see a dramatic lift in your scores. The trick is to apply for new credit after the payments have cleared and your credit file shows these new, lower balances on your credit cards.

How to Improve Credit Score: How Your Score is Determined

Quick Tip: If you have a good credit history with a particular creditor that is only reported to one or two credit reporting agencies, contact the lender to see if they will add that payment history to the other agencies – this can help give your credit scores a boost with minimal effort.

Credit Scoring in the Future

While the FICO score is still the gold standard when it comes to how your credit profile is ranked among lenders, it isn’t the only option. In 2006, the three credit bureaus came up with their own scoring system, called VantageScore, in order to compete with FICO. VantageScore has a range of 501-990, compared to the traditional FICO score that ranges from 300-850.

Your lender may or may not tell you which scoring system they used, so this can add to the confusion as the two sets of scores are not equivalent. Further complicating things is the fact that the way credit scores are calculated is constantly changing in response to both current credit trends and other market pressures.

For example, in response to the housing crisis and the recent uptick in strategic defaults on certain mortgages, there has been a push to re-calibrate credit scores to more accurately reflect the current mortgage default risk factors.

In the future, credit scoring will likely take into account additional factors and may weigh the various aspects of your credit profile differently than it does now. As these changes occur, we will cover the strategies to keep your scores at their best.

Why Special Financing is Not How to Fix Your Credit

In the current economy, retailers realize that they are competing heavily for every dollar spent by consumers affected by the credit crisis. Because of this, many are offering promotional 6-month, 12-month, or even 24-month financing with no interest.

On the surface, it seems like a great deal if you can get approved – get your holiday shopping done now, and pay it off over the course of the next year. However, the deeper and you’ll find that the terms and conditions are riddled with pitfalls designed to make sure you end up paying more (possibly even more than you can afford). Make no mistake about it, the Black Friday shopping event is designed to put retailers “in the black” for the year, not to save you money.

There are many reasons these holiday promotions just don’t add up, but there are three main “gotchas” that will keep you from fixing your credit if you fall into the trap:

Gotcha Number 1: Those special promotional rates are (generally) only available for high-priced purchases.

That means you’ll have to spend more, and in so doing, your debt-to-credit ratio will rise. Having high balances on any credit account actually lowers your credit scores. Once you factor in the cost of the interest rate if you don’t pay it off in full by the time the promotional period ends, you could lose any savings from the discount price.

Gotcha Number 2: If you miss a payment (even if it’s only by a day, or a few hours!), a penalty interest rate is generally applied, sometimes retroactively, to your balance.

If you’re a month late, you’ll get dinged on your credit score twice! Once for the late payment, and again as the interest retroactively applied to your balance will increase your debt-to-credit ratio. With a 30% or more penalty interest rate, you can actually wind up paying more for your items than if you’d bought them at full price.

Gotcha Number 3: If you don’t pay off the entire loan by the end of the promotional period, you’ll have to pay the interest on the entire purchase, not just the last few months you have left. Again, this negates any savings you may have thought you had.

Even if you manage to pay on time and avoid the interest penalty, those great introductory offers can quickly spiral out of control once the promotional period ends, and the lower your credit score, the more you’ll potentially pay in retroactive interest:

Too often people look at improving their credit score as an insurmountable task that may never come to an end. And who can blame them? The way credit scores work is a mystery to most people. In addition, the people who do understand how they work quickly come to realize that it can be long process that tests their patience. In spite of this, there are things you can do today that will help your credit score begin to rise. Here are aaacreditguide’s top 5 tips for beginning to improve your credit score – today.

1. Start paying your bills on time from now on. There’s an old saying that goes something like this: “If you don’t change your course, you will arrive at where you are going.” This saying will hold true for your credit score as well. If you find yourself constantly struggling to make minimum payments and pay bills on time, the right time to start doing so is now. Once you stop the patterns that have led to you having a low credit score, your credit report can actually recover relatively quickly. It can be an exciting thing to check your credit score every few months and watch it climb continually.

2. Request a copy of your credit report from each of the big 3 credit reporting agencies. You need to know what things are hurting your score in order to know where to focus your efforts in the future. In addition, there may be simple errors on your credit report that you can have removed.

3. Develop a personal budget. The No. 1 key to financial success is to spend less than you make. An ancient proverb says that if you make five dollars and spend four, you will have a happy life – and if you make five dollars and spend six, you will have an unhappy life. This may be oversimplifying things a little, but generally speaking, this principle usually holds true.

4. Pay down your high interest loans and credit cards as fast as possible. Once you get your finances under control it’s time to start actually paying down the accounts you owe money on. Start with smaller debts and accounts that have the highest interest rates. From there, work up to the larger debts and lower interest rates. Few things ensure prolonged financial difficulties as much as simply paying the minimum payments on your credit cards and other financial obligations.

5. Find ways to save money. I understand that people do not choose to miss payments, or have a low credit score. Bad credit and most other financial problems happen as a result of having too many bills and too little money. There are only two fixes to this overarching problem – first, you can start making more money (which can be tough to do), or second, you can start spending less money (which is much easier to do). By spending less money, you can free up your extra income to pay down debts and save for a rainy day.

When I was going through trying economic times in my own life, I was able to cut my monthly expenses in half by doing the following things:

- I sold my car that I was making payments on, and paid cash for a less expensive car. This saved me more than $150/month, and I like my new car almost as much as the old one.
- I shopped for less expensive options for my health, and auto insurance premiums. I cut my auto insurance premiums from $120/month to $55/month by doing this.
- I stopped eating out, and started making meals for myself. I went from spending on average around $15/day on food to spending about $20/week on food.
- I stopped making purchases on things I didn’t see as necessities. I used to spend as much as $100/month on clothing, now I almost never buy clothes and when I do it is from thrift stores.

The result of these changes led to greater financial independence in my life and it also helped me to clean up my credit. The best part about it is that I don’t feel like my quality of life has gone down at all. These are things everyone can do, and I hope that you will give them a shot if you want to repair your credit score.

1. Check your credit report and credit scores. People who know they have poor credit may only know because they’ve been recently turned down for new credit. If that applies to you, get your credit report sooner rather than later. Being turned down for credit entitles you to a free copy of your credit report, even if you’ve already received your credit report in the past year. By getting the most recent version of your credit report and scores, you’ll know exactly where you stand. Start off by disputing any inaccuracies that you see – inaccurate items on your credit report can significantly damage your scores.

2. List your debts from smallest to largest. By itemizing your debts, it will help you to focus on paying down your debts more efficiently. If most of your debts are nearly the same value – $1000 on one credit card and $1500 on another, for instance – then list your debts by interest rate instead.

3. Pay off the smallest debt (or the one with the highest interest rate) first. By getting rid of debts in a targeted fashion, you can improve your credit scores more quickly as you eliminate your debt obligations one at a time. Use the money you spent towards paying down the first debt as an additional payment to pay off the next, and you will be able to get out of debt even faster.

4. Don’t forget to reward yourself along the way. Getting out of debt and improving credit scores is hard work. Whenever you meet one of your goals, set aside a reasonable reward to celebrate your hard work. Whether it’s saving for a vacation, a special night out, or some other treat, make sure that it fits with your current budget and savings goals.

5. Remember that not all debt is bad. Some debts are actually seen as good debt by lenders. In general, if you have borrowed to purchase something that will increase in value, this debt is seen as positive by lenders. Student loans, traditional mortgages, and money borrowed to grow your business all fall into this category. That doesn’t mean that you shouldn’t repay these debts – on the contrary, paying off good debt can only increase your net worth in the future.

Paying down debt and paying on time are two of the most powerful techniques for raising credit scores. If you’re having difficulties with tackling your debt and getting your credit on track, talk to a reputable credit repair agency, and work with a professional to raise your credit scores one step at a time.

Tip 1: Avoid Excessive Hard Inquiries on Your Credit Report

If you are shopping for a loan, avoid applying to several different places and waiting to see what offers you receive. Multiple credit report inquiries in a short period of time can lower your credit score, even if you have an otherwise clean history. If you have your credit score, a better option may be to shop around without filling out the loan application until you’ve narrowed down your choices. If you know where you fall on the credit scale, then you can make a reasonable estimate as to the amount of interest you’ll be expected to pay and the terms of your loan. Regardless, it pays to keep the hard inquiries to your account to a minimum if you are trying to raise your credit score.

Tip 2: Be Alert for Potential Errors in Your Credit Report

This is a tip that may best be facilitated through working with a credit repair company. If you have errors on your credit report that are harming your score, you have the right to dispute these errors and have them corrected and/or removed. If you don’t recognize an account, or if there is erroneous information about the account, a reliable credit repair agency will be able to successfully contest the negative information on your behalf. Cleaning up your credit report will allow you to focus on taking care of any remaining negatives without having to worry about incorrect information having an impact on your credit score. If you believe that you may be a victim of identity theft, then you should also file a police report and notify the credit bureaus as soon as possible – minimizing the damage done by identity theft is essential to any credit repair process.

Tip 3: Work with Your Current Lenders

If you have some accounts that are in less than stellar shape, but that aren’t in dispute, consider trying to negotiate with your current creditors. This can be done through a credit counseling agency in some cases, but you may also be able to work directly with the lender if you have an established relationship that is mostly positive. One particular aspect you may wish to ask about is re-aging. Re-aging is a process that will get rid of your past due account by making it appear as “current” on your credit report. While federal laws dictate how a creditor may re-age your account, in general if the account is over 9 months old, and if you have made 3 consecutive payments and have demonstrated a willingness to continue to make payments, then re-aging should be an option for you. Creditors sometimes use re-aging to make an old debt look new, but if you’re planning to pay, it’s in your best interest to request that the account be re-aged. It’s quick, it’s free, and it gets rid of all the 30, 60, 90, and 120 days late notations for that account if you keep the payments current.

No matter what route you take with regards to repairing your credit, following these tips will help you to improve your score in a manner that is both ethical and long-lasting. Many credit repair companies can provide additional information and counseling about these techniques, and give specific advice tailored to your particular situation.

Your available credit to debt ratio is, simply put, the amount of debt you currently carry, divided by the amount of your available credit. For example, if you have a credit card with a $1000 limit and you carry a $500 balance, your available credit to debt ratio is 50%. The lower this ratio, the better your credit score will be. Ideally, you should aim for a total credit to debt ratio of 30% or less. A high ratio will negatively impact your credit score even if you make all of your payments on time. This is because people who use most or all of their available credit are seen as having a higher risk of default.

It may seem as though the answer to improving your credit to debt ratio is to open more credit card accounts. In reality, opening multiple accounts in a short period of time will negatively impact your score. Your best option, if you have been making payments on time regularly to your credit card company, is to call and ask for a modest increase to your credit limit. This helps in two ways – first of all, it is an increased limit on a card that has a successful payment history. Secondly, it increases your overall available credit, which will lower your available credit to debt ratio, improving your credit score.

By the same token, if you have credit cards that you have paid off recently, don’t cancel them. The available credit on those cards still counts as part of your available credit to debt ratio. If you’re worried that you might be tempted to spend, take the cards out of your wallet and put them in a safe place that isn’t easily accessible for impulse purchases. Every six months or so, you may want to use the cards for a small purchase such as dinner or a movie, in order to keep the accounts from being canceled due to inactivity. Be sure to pay the full balance on the card when it comes due, in order to keep your debt ratio down.

Another way to improve the available credit to debt ratio is to pay more than your minimum balance each month. Besides being an excellent financial advice, paying more will free up more of your credit, and lower your available credit to debt ratio. One word of caution, however: if you have several credit cards with very high limits that you are not using, and that carry no balance, you may want to ask to have the limits lowered temporarily if you are in the market for a car or other large purchase. Some companies see an excessive amount of unused credit as potential debt, and may be reluctant to loan funds in that instance. In most cases, however, this credit will not work against you, but for you as you continue to build a solid credit history that will keep your credit score climbing.

You can dispute a bankruptcy on your credit report the same way you can any other listing. If you are fortunate enough to get the bankruptcy removed, you will be able to start repairing your credit much easier. However, if you don’t change your spending habits and make some lifestyle changes, removing your bankruptcy will only delay your financial misery and you will be back where you started.

Learning from your mistakes and living below your means is the only way you will ever attain financial peace. Learn how to make a budget and stick with it. You should probably only get a couple credit cards strictly to rebuild credit. Discipline yourself to use them for nothing but credit rebuilding.

When you are ready to start rebuilding your credit (which should be immediately) you will need to start small. Don’t expect lenders to give your high credit limits right away. You may have to start off with unsecured credit cards with high interest rates. That’s why I suggest keeping a balance of only $50-$100 and ONLY using these credit cards to rebuild your credit.

While you are adding positive trade lines, it is important to also try to remove bad credit from your credit report. If you use both methods correctly, you should have respectable credit scores within 6 months to a year. At that time, you will be able to get better interest rates and should consider transferring any balances from the high interest cards to the new lower interest cards. Just remember, the best thing you can do for your financial future is learn how and why you got yourself into this situation and how you’re going to avoid it from happening again.

1. Pay your bills on time. Sounds simple, but this is the best way to keep your scores high. Delinquent payments and collections have a severe impact on a score.

2. Keep credit card balances low. Large balances will have a negative impact on your score. I generally recommend keeping balances below 30% of your credit limit.

3. Don’t open too many new accounts too quickly. Especially if you’re relatively new to credit. This will create too many inquiries which hurts your score.

4. Make sure the information in your credit report is correct. If it’s not, dispute it with the credit agencies and/or with the creditor directly.

5. It’s OK to check your own credit. Be sure to monitor your credit on a regular basis and be ready to dispute any derogatory information on your reports!