Paying your bills on time and never missing payments will undoubtedly lower your score over time. Also, staying out of bankruptcy and avoiding tax liens, as well as lowering the ratio of outstanding debt to available credit. If your balances are at or near their maximums, the lending community sees you as a higher risk of default.
Payment History (35%)
Make your payments and make them on time. Many creditors allow a grace period, but the goal here is to make the payments on time, even if it is only the minimum payment. Ideally, you will be able to save a cushion of at least one month's payments, in case you run into cash flow trouble. It is better to have the cash available if you need it, then to run into an issue where you are late.
Capacity (30%)
The optimum shape for level of debt outstanding vs. total available is approx. 20-30%. The best way to improve this area of the credit score is by paying down debt, focusing on those accounts with balances closest to being maxed out. Avoid cutting up or canceling cards, as this will reduce your overall available credit.
Length of credit (15%)
Avoid canceling credit cards, unless they are charging high fees. The longer you have had relationships with lenders, the more this area will help your credit score. Generally speaking, it is a good idea to have had at least one credit card for over two years. If you must cancel cards, try to cancel the newest ones first.
Type of credit (10%)
This is a difficult factor to improve on. Part of this factor involves the credit bureaus' perception of various lenders, which can be difficult to gauge. Generally speaking, sub-prime lenders, or those lenders which it might be easier to obtain a loan from, but charge excessive fees or interest rates, are looked down upon by the credit bureaus. Also playing a factor is your composition of credit debt vs. other types of debt such as installment, but the ratios are different for each credit bureau.
Search and acquisition of new credit (10%)
This is an interesting one. At first glance, it may seem as if the credit bureaus are penalizing you for shopping around for the best rate and terms of a mortgage or credit card. However, in their eyes, all inquiries (or applications for credit) within a 15-day window are considered one inquiry. Thus, the idea is to prepare your preferred list of lenders and apply to all quickly, rather than letting the process drag out. It also may go without saying that you should avoid applying for every credit card or loan offer that comes in the mail.
The three credit bureaus, Experian, Trans Union, and Equifax, have the seemingly overwhelming task of tracking all of these factors for each and every American with credit. Unfortunately, it is inevitable that mistakes will be made, and it these mistakes will usually push your score lower than it should be. It is your responsibility to be vigilant with your credit, and check for errors and fraud as often as possible. You can find a free credit report by clicking the following link, Free Credit Report .
If you do find errors on your report, you can either write the three credit bureaus yourself and fight to have the errors removed, or you can hire a specialized credit repair firm to do it for you. Although the industry in general has been given a bad name by smaller companies who are looking to take your money and offer little help, larger players such as
Lexington Law , take the hassle out of the process and guarantee results. In most cases, over the long-term the improvement in your credit score and consequent access to lower interest rates will more than outweigh the $300-500 dollar total cost.
