Credit reports can have a massive impact on your life. You may know that lenders pull credit reports when considering loan approvals, but did you know that landlords, and even employers, may be looking at your credit report to understand how you handle responsibilities?

So much depends on having a good credit history and score but getting there may seem easier said than done. While there is no quick fix, here are five important steps you can take now to start improving your credit score today.

Credit Score versus Credit Report

Before we jump into today’s tips, it’s worth noting that your credit score is only one part of your overall credit report. A credit report includes your payment history, current balances, open and closed accounts, and available credit. Your credit score is a rating—typically between 300 and 850 – that sums up your payment history. Many lenders use the scoring system created by the Fair Isaac Corporation, commonly referred to as your FICO score.

Make On-Time Payments

It can’t be overstated how important a positive payment history is to a credit profile. Consider that up to 35 percent of a FICO credit score is based on this one factor. Whether you’re building, growing, or repairing your credit, keeping accounts up to date is vital to improving a credit score.

According to FICO^®, late payments can drop a score by 180 points and can stay on your report for seven years before falling off.

Mistakes can happen even if you are diligent about making payments. To avoid a credit hit, set up recurring payments for your monthly credit bills. Many creditors, banks, and credit unions offer this service for free, and you can often set up payments to cover the minimum, a set amount (i.e., $50 per billing cycle), or the full amount.

Increase Your Credit Line

Your credit usage is another big component of your overall credit score. A credit utilization ratio compares your overall available credit with your current borrowed amount. In general, keeping your utilization below 30 percent of your available amount is a good idea. A higher percentage could indicate to creditors you are taking on too much debt.

Paying down your amounts owed is the primary way to keep your utilization ratio below this 30 percent threshold, but another option is to apply for a credit line increase or an additional credit line. By raising your credit ceiling, you are giving yourself more headroom and dropping your utilization ratio. Just note for this to work, you should not be charging more on your credit card or increasing your borrowed debt.

Keep Old Accounts Open

So, you applied for a Hot Topic credit card back in your rebellious mall punk years and, to your goth horror shock, were approved. But now that you’ve traded studded belts and mohawks for safety belts and minivans, it seems tempting to close that old card account. However, much like your love of Good Charlotte, this is unwise. That’s because the length of time that your accounts are open can have an impact on your credit score. The longer you have them, the better. Unless your credit line charges high annual fees, we recommend leaving them open. You can use them sparingly for small purchases and pay them off right away to avoid accruing interest.

Make Multiple Monthly Payments

Creditors report balances to the credit bureaus once a month. Depending on the timing of your billing period, your credit company may still be reporting a higher balance and utilization even if you pay your balance down each month. You can alleviate that problem by breaking up your payments twice a month (one before your billing period and one after) to keep your balances running low and ensure more accurate reporting. This will keep your credit utilization low and, hopefully, your score high.

Remove Charge-Offs

A charge-off is a debt that has been unpaid and sent to a collection agency as a result. Charge-offs are a major blemish on your credit report as they can indicate to lenders that you’re unable or unwilling to pay your debts. However, charge-off accounts can be resolved and removed, and you should be taking immediate steps to do so. The first step is to review your credit report regularly and look for any negative accounts. Dispute any inaccuracies with one of the three credit bureaus right away.

If it’s a legitimate charge-off, you can contact the lender to pay the debt. Many lenders and collection agencies offer payment plans to cover delinquent debt. Furthermore, some will even negotiate the amount owed. Ask your lender of the collection agency about your options, but act quickly, as some charge-offs still accrue interest, adding to your existing debt woes.

There you have it; five credit hacks to help you take your credit score to the next level. Don’t forget that we have even more credit resources available, along with a host of financial tips and tricks to help you achieve financial independence. Check out some of our latest Smart Cents articles today.

Credit Bureau Information

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