You'll need a good credit score to get the best rates on your loans, but if you've made mistakes in the past, you can take steps to raise your score. It can take several years to raise your score to the highest levels, but it's worth the effort. Make changes to your behavior to improve your credit score.
Basic errors on your credit report may be doing some damage. Order a free copy of your credit report and scan through it for errors. For example, you may see an incorrect credit limit or a closed account showing as open. You can contact the credit bureaus to dispute these, providing evidence when possible. When the company removes this incorrect information from your report, you'll get an instant score boost.
Paying on Time
Your payment history plays the biggest role in your credit score--it accounts for 35 percent of your score. You should always pay your bills on time. A good way to do this is to set up automatic withdrawals on all of your accounts. Then, you'll never have to worry about forgetting to send in your payment.
Paying Down Balances
The amount of money that you owe as a percentage of the total amount of credit available to you accounts for 30 percent of your credit score. If you can pay these balances down, you'll see a gradual increase in your score.
Diversifying Your Credit
The credit bureaus like to see that you have a mix of credit, including term loans like an auto loan and revolving credit loans, like credit cards. This only accounts for 10 percent of your score, so don't feel pressured to get an auto loan or a mortgage if you don't need one just to improve your score.
Fifteen percent of your credit score is based on the length of time that you've had your accounts. Even if you completely pay off a credit card and have no intention of using it again, it's smart to keep it open to improve your score. Additionally, any negative marks on your credit report, such as late payments, will drop off of your report after seven years.
Maggie McCormick is a freelance writer. She lived in Japan for three years teaching preschool to young children and currently lives in Honolulu with her family. She received a B.A. in women's studies from Wellesley College.