Steps to Increase Credit Score

by Rocco Pendola, Demand Media

    The average nationwide credit score, as of October 2010, was 666, according to the Credit Karma blog. That number was static between August and October and up from 663 in January 2010. Your credit score helps prospective lenders determine your credit risk as well as insurers, landlords and even employers make decisions about your ability to not only make payments, but prove trustworthy. You're all grown up now; it's time to take hold of your finances. This means getting your head around your credit score.

    Get Your Credit Report

    Before you can improve your credit score, you need to know what's holding it back. Federal law requires each of the three major credit reporting bureaus--Experian, Trans Union and Equifax--to provide you with a free copy of your credit report annually. You can get yours at the Annual Credit Report website (see Resources). While your score is not free--you'll have the option to buy it after you secure your free report--a look at your credit file ought to give you a clear indication of how your credit behavior impacts it.

    Make On-Time Payments

    While different lenders may use different credit scores, the FICO score is among the most widely used. The MyFico website stresses the importance of paying your bills on time, particularly the ones that show up on your credit report, like credit card obligations. In fact, your payment history accounts for about 35 percent of your FICO score.

    Pay Down Debt

    The amount of debt you carry ranks second in importance vis-a-vis FICO score impact. The more debt you have, the better the chance your credit score will not be where it should be. Don't play the balance-transfer game. This is a game of smoke and mirrors, which can actually have a negative impact on your credit score. Instead, tally up your total debt and pay it down.

    Mind Your Balances

    Consider attacking the balance that is closest to your credit limit first. As the Federal Trade Commission advises, some credit-scoring systems frown on "maxed-out" consumers. If the amount of debt you have comes close to your credit limits, expect your credit score to suffer. To this end, a FICO score in particular can decrease if you owe the same amount but have a small number of open accounts. This lowers your debt-to-available credit ratio.

    Don't Open or Close Accounts in Haste

    Closing unused credit accounts can put a ding in your credit score. The practice can effectively lower the aforementioned relationship between the amount of debt and available credit you have. You want a comfortable cushion between these two numbers. On the flip side, don't go on a binge by opening credit accounts while you are trying to improve your score. Lenders might look at a whole bunch of available credit coming online all of a sudden as a potential risk.

    About the Author

    As a writer since 2002, Rocco Pendola has published numerous academic and popular articles in addition to working as a freelance grant writer and researcher. His work has appeared on SFGate and Planetizen and in the journals "Environment & Behavior" and "Health and Place." Pendola has a Bachelor of Arts in urban studies from San Francisco State University.