Smart SpendingSmart Spending

How to improve your credit score

People ask about how to improve their credit scores all the time. Here's the step-by-step guide to boosting those all-important numbers.

By Jun 25, 2013 12:25PM

This post comes from partner site logoThe short answer to the question of "how can I help my credit score" is the following: through responsible credit management. That’s what credit-scoring models want to see. This means that you should always pay your bills on time, be sure to keep your revolving (credit card) debt respectable, and don’t shop excessively for credit.

Close up of stack of credit cards © Adam Gault, OJO Images, Getty ImagesHere's the longer answer: Some of us have bad credit and need to rebuild it. Some of us have no credit and need to establish it. And some of us have great credit and need to maintain it. Follow the the 10 steps outlined below, and you'll be well on your way to better credit reports and higher credit scores.

Step 1: Find out what the credit report companies are saying about you.

The worst thing you can do with your credit is to ignore it or avoid it. It’s like trying to put a roof on a house that has no framing; it’s simply not going to work. So the purpose of following this first step is to find out everything there is to know about your credit reports and scores. Then you can build your action plan for the future.

You can get this information from free annual credit reports that come directly from the credit reporting agencies. The website allows you to request a free credit report from each bureau every 12 months. These free annual credit reports do not include your credit scores for free. You can, however, use's free Credit Report Card to get your credit scores, to see where you stand compared to national average, and for a clear breakdown of the information in your credit report.

Step 2: Review your credit reports for accuracy.

Everyone should do this at least once every few months. This step isn’t as easy as it should be, because credit reports can be confusing and intimidating. They can be dozens of pages long and contain unfamiliar codes and terms. But recent enhancements to online consumer credit report formats have made it a bit easier to sort through your data. Once you have your report, you will need to do the following:

  • Identify your accounts. You should first check that the accounts listed on your credit report do in fact belong to you. Note that some accounts are reported using a different name than what is printed on the card. For example, if you have a Home Depot credit card, it will most likely show up on your credit reports as a Citibank credit card because Citibank is the issuer. You also want to be sure nobody has opened accounts in your name without your knowledge. If you see any strange or unauthorized accounts on your credit reports, you can file a dispute with the credit bureaus to have them removed.
  • Be sure that all of the information is accurate. This applies to both bad and good credit information, but more so for the bad items (should you have any). Bad information, such as late payments, public record items or collections, will drive down your credit scores. Wrong addresses, names, employers, payment histories, credit card limits and dates are problems and need to be corrected even if they aren’t hurting your credit scores.

Step 3: Focus on the past 24 months.

If you have bad credit, it’s likely that you have negative information on your credit reports. Such information could include late payments, collections, tax liens, judgments, repossessions, foreclosures, settlements and even bankruptcy. 

Credit scores are calculated by applying a complex mathematical formula to almost all of the data on your credit reports. Credit scores pay special attention to the negative records that have occurred in the recent past, specifically things that were reported in the past 12 to 24 months. 

What this means to you is that you can start helping your credit if you stop doing things that continue to cause these negative items to be reported on your credit reports. 

Step 4: Focus on the next 24 months.

Credit scoring models love to see positive information on your credit reports, especially if you have low credit scores. Therefore, if you have low scores, one of the best ways to boost them is to give the scoring model something else to focus on -- a positive distraction. In the case of bad credit, you absolutely need to manage your money more responsibly than ever before.

Step 5: Understand your credit standing.

There’s a reason your credit scores are what they are. It’s no accident that your scores are good, average or bad. One key to helping your credit is to understand what is impacting your credit scores. Many online credit scores include a brief analysis of the factors that are causing your credit scores to be higher or lower. These factors can help point you in the right direction.

Step 6: Understand what “counts” in your credit scores.

One of the reasons that people are often so confused about their scores is that they don’t understand how much certain things count. Here's the breakdown:

  • Your payment history. This is the most important component. Paying your bills on time will help you boost your score in this category, while late payments and collection records will hurt your scores. However, making all of your payments on time is not the only thing it takes to earn a great score.
  • Your debt. All of your debt balances are factored into your score, but your credit card debt has the most impact. It is important to keep your debt balances low in relation to your credit limits.
  • How long you’ve had credit. This segment specifically measures how long you’ve had credit by looking at the “opened” dates on your accounts. The older your credit history, the more points you’re going to earn from this section.
  • Your variety of accounts. In order to earn as many points out of this category as possible, you need to have a diverse credit history. Diverse in this case means a little bit of many different types of accounts including credit cards, car loans, student loans and mortgages. The only type of account that can be unhealthy for your credit scores is a finance company account.
  • Your efforts to get new credit. When you apply for new credit, a ”hard inquiry” is posted to your credit file by the lender you applied with. Having too many inquiries means that you are shopping excessively for credit and this can lower your scores.

Step 7: Don’t let your ego cost you.

This step is specifically for people who have FICO scores higher than 750. First off, congratulations on your great scores! The bottom line is that with a score of 750 lenders see you as golden and you’re likely to get their best offers.

You'd be surprised at how many people think that a score of 750 needs help. There’s no need to try and boost your 750, but there is a need to maintain it. In fact, you’re more likely to lower your great scores by trying unproven, unwise and unnecessary strategies than you are to raise them, and that’s the last thing we want to happen. Think about it this way: It’s a whole lot easier to lower a 750 than it is to raise it. So, be happy and enjoy your excellent scores. Focus on what it takes to maintain them.

Step 8: No knee-jerk reactions.

If during Step 1 you realize that things aren’t exactly how you wanted (or expected) them to be, don’t panic. The worst thing you can do is start closing accounts or opening accounts or transferring balances just because you think it’s the right thing to do. In most cases, it's best to proceed with caution. 

Step 9: Avoid credit repair scams.

There is an entire industry of scam artists out there preying on people with bad credit. These so-called credit repair companies offer services promising to clean up the negative information on your credit reports. Fees range anywhere from $39 to hundreds of dollars per month. Essentially all these companies do is send dispute letters to the credit bureaus disputing negative (but accurate) credit information on your credit reports. Save your money and avoid these expensive, ineffective and often illegal programs.

Step 10: Be realistic about negative credit information.

There is no quick, easy or inexpensive way to rebuild your credit. If you have negative records such as collection accounts, judgments, bankruptcy filings or liens, there is often not much you can do about those records while you wait for them to expire after seven to 10 years. That certainly doesn’t mean that you can’t get credit, but lenders will be cautious about lending you money or giving you one of their credit cards. 

Next, you’re going to probably have to endure some secured credit cards for a while. This type of credit card is actually a great way to rebuild your credit. You give a lender a cash deposit and the lender issues you a credit card secured with a credit limit of the same amount. Secured credit card issuers charge fees and have very high interest rates. You don’t want to do business with them forever, but they are a good place to re-start your credit history.

After several years (not 12 months), your credit scores should allow you to re-enter the world of “prime” borrowing. That’s assuming that you’ve rebuilt your credit reports and credit scores by establishing new accounts and managing them responsibly.

More from

Jun 25, 2013 3:29PM
I love how writers think that this is such a complicated subject. It's really simple. It's a ratio of what you have and what you owe, and how you pay those that you owe. Nothing more.
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.