Tips To Improve Your Credit

When it comes to improving your credit, you first should understand the components of scoring credit.

Here are the five components of credit scoring in order of importance:

Payment History. Perhaps the most important factor. Repayment of debts on time and in full is a big plus. Late payments, judgements, charge-offs, etc. as you can imagine can significantly reduce one's score. Delinquencies within the most recent 2 year period affect score more than those that are much older.

Outstanding Credit Balances. Almost as important as payment history. The higher the balance as a percentage of the available limit, the lower the score. Better to keep outstanding credit (particularly revolving debt, such as credit cards) balances below 30% of available.

Length of Credit History. As it pertains to when credit for a particular debt was established. Generally, the older the debt (i.e. a car loan, mortgage, etc.), the better. Thus, a borrower who has a lengthy history of satisfactory debt repayment, is a lower risk and therefore have a higher score than one who recently opens credit accounts for the first time.

Type of Credit Used. A variety of different types of debt (installment and revolving - mortgage, car loan and credit cards) is better than a concentration of a particular type of debt obligation (revolving only - credit cards).

Credit Inquiries. The number of times a credit report is "pulled" for a consumer within the preceding 6 month period can reduce the credit score. More than 10 inquires in a 6 month period should have no further impact on a borrower's credit score. Each inquiry, can reduce a consumer's credit score anywhere from 2 to 50 points.

Five Tips To Improve Your Credit

Always Pay Your Bills On Time. Paying your debt obligations late can have a significant negative impact on your credit score. Consistent on time payment on your bills will help to increase your credit score.

Keep Low Credit Card Balances. Sounds simple enough, but this is typically a trouble area for many people. High outstanding debt balances, such as maxing out your credit cards, may bring down your average credit score significantly.

Don't Open New Credit Account That Are Unnecessary. This is particularly true for opening new credit cards. New credit accounts can lower your credit score because they lower the average age of your credit accounts.

Establish A History Of Responsibly Managed Credit. Generally speaking, having a history of some open credit accounts with modest balances should increase your credit score. Someone with no credit history, for example, tends to be higher risk than someone who has a long standing history of responsibly managed credit.

Promptly Correct Any Credit Issues. If you know you're currently delinquent on an account, work promptly to bring it current. Do not let your credit account go into collection. This includes cell phone bills, credit cards, mortgages, student loans and auto loans.

When it comes time to buying a home, mortgage applicants would be well advised not to go out on a shopping spree for furniture or any other big ticket items. Additionally, if you are a "renter", make sure you always pay your rent on time. Borrowers should always exercise extreme caution in continuing to manage their credit practices throughout the loan process.