Boost Your Credit Score in Five Simple Steps

More than 30 million people in the USA have credit report 'bruises' severe enough to score under 620 on a Beacon Score and make obtaining credit at reasonable terms difficult. Others, whose credit is OK, would like to make it better because the higher a credit report scores, the better interest rates are on everything from mortgages and car loans to credit cards and overdraft protection!

Credit scores are three-digit numbers used by lending institutions, insurance companies, employers and landlords to evaluate individual creditworthiness. Scores can range from 300 to 850 points. Overall, approximately 11% of people rank over the 800 mark and 29% rank in between 750 and 799. This leaves roughly 60% of people who should know how to spruce up their credit ratings.

For that 60% (you’re in good company!) improving a credit score begins with some basic steps, the first of which is to find out where you actually stand. To do this, obtain a copy of your credit report from one of the three major credit bureaus or better yet obtain a 3 in 1 credit report that covers them all. This may be available to you free of charge depending on location or circumstances. With your most recent report in hand, analyze the information for any errors and then have the credit bureau make the corrections to your file.

When that has been done you will be ready to take the next steps and improve on what is now showing by using a few common sense and effective methods.

Your bill payment history accounts for about 35% of your credit score and therefore, as a single item, is the one thing you can do that makes the most overall positive impact! Most people don’t know that recent payment history carries more significance than past history! Making your payments on-time will have the most immediate effect and if you want to super-charge the process, overpay those bills and actually carry a small balance!

Late payments can hammer your score. You’ll drop 50 to 100 points for being late on one payment and if you were to default on all your payments for even 1 month could lose you 150 points and possibly more! The bottom line is that its easier and faster to LOSE points than it is to build them back up!

Credit scores improve as the margin between debt and available credit increases. A little known fact is that in scoring your credit, there is no difference between carrying a balance and not carrying a balance. Therefore using your credit lines less can only improve how you look on paper.

Credit card issuers have a look at your outstanding balance on a regular basis and forward that information to the credit bureaus. The information does not display whether you carry your balance or pay it off each month. Therefore that margin of balance vs. available credit is the single factor that reflects on you!

Contrary to what used to be the accepted practice of closing paid-off accounts, the reality nowadays is that doing so can actually harm your score!

While that seems to defy logic, look at it this way; Closing older accounts has the effect of shortening your credit history …not necessarily a good thing! Secondly, keeping older accounts open, even though you don’t use them, has the effect of widening the margin between the credit available to you and the amount you are actually using on a month to month basis …and that looks good as discussed above!

If your score is already good, go ahead and close old accounts to simplify your affairs. However if you are actively using your credit line(s) it is best to keep them open to show the most margin. This becomes especially significant if you are about to apply for an new line of credit! In general, however, the wise will only open and maintain what credit they actually need.

Today, FICO scores ignore any and all references in a credit report to credit counseling or debt management programs. This runs contrary to what was standard advice not so long ago because it used to be the case. About 3 years ago research found that people in "debt-repayment plans" were no more likely to default or go into bankruptcy than any one else.

However it should be known that a relatively small number of lenders continue to use the old system that penalizes people who are in debt repayment plans, and others (particularly mortgage lenders) refuse to work with people while they are actively in credit counseling …no matter how good their credit score is.

The good new is that all references to ‘credit counseling’ are generally removed from your credit report after successful completion of the repayment plan, meaning that there will be no lasting annotation on your credit file.

[Read why you should Beware of Credit Counseling Firms in some cases!]

Even with a good credit score, a bankruptcy can lower your score by 200+ points. Where a credit history contains multiple delinquencies or collections the penalty will be less due to an already low score. Recovering from bankruptcy can be tough, and most times will drop your score below 620 which makes any sort of credit expensive and difficult to find!

Mainstream lenders will typically reject bankrupts whose bankruptcy can remain on file for as much as 10 years. However, the high-risk, high-interest lenders will instantly become your new best friends because they know you cant file for bankruptcy again for several years which means they can look forward to all that interest money from you during those years. With friends like that, who needs enemies?

[Considerations Concerning Bankruptcy and Divorce]