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:

Applying for joint accounts or having a cosigner is nothing new in the world of credit. Generally speaking, the idea is that you benefit from the cosigner’s good credit in order to qualify for your loan. Or, in the case of joint accounts, you share the account with a person whose credit is in good standing. In both of these instances, the aim is to give you access to immediate credit, either in terms of a car loan or credit card account, which you then use to build on your own good credit. This can be effective over the long term, assuming that payments are made on time and the account is kept in good standing.

However, with the current credit freeze in place, trying to build credit in this way can prove difficult, as lenders are reluctant to extend new credit in many instances, and FICO may no longer take into consideration authorized users on an account. Because of this, some individuals are looking at joint accounts in a different light. Rather than using a cosigner to help secure a new line of credit, some individuals ask a relative or other trusted associate to add them to an already existing account that has a solid payment history and a low debt to available credit ratio.

This helps in two ways – the solid payment history on the account is now reflected on the individual’s credit report, which may improve the credit score. And the low debt to available credit ratio means that as the individual pays down his or her own debts, the credit score may improve more quickly. In return, the individual generally agrees not to have access to the account, other than in name only. Ideally, the account in question should have at least two years of solid payment history, and a debt to credit ratio of no more than 35%.

If you use this method to improve your credit score, you should be aware that all the standard caveats apply – and this can become particularly risky if the person whose account you are sharing falls behind on the payments. However, as an authorized user of the account, you may be able to remove yourself from the account in question if it goes beyond 30 days past due. This is different from cosigning a loan, in which case you would be fully responsible for the debt, regardless.

While careful use of joint accounts can improve your credit score, it does not take the place of making timely payments on your own accounts, and you may not see as much of a boost with this method as you would by hiring a credit repair company to assist you with removing erroneous information. However, if you don’t have much credit on your report, and you have a friend who is trustworthy and willing to help you with your situation, joint accounts can help to improve your credit score and help you to qualify for credit in your own name. Just remember to monitor your credit report regularly, and make certain that you are free to drop your name from the account without penalty when the time comes.

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!