By David Pilley on January 14, 2011
.jpg.aspx?width=75&height=75) Well, we are deep into winter now and, depending on where you are, you may have seen a lot of snow. The old saying is that no two snowflakes are exactly the same. This could also be applied to credit by saying that no two credit reports are exactly the same. However, you can probably tell the difference between a good credit report and a bad credit report. There is a general formula in determining your credit score, though, and by knowing this you can improve your score.
FICO tabulates your score with five basic aspects: payment history, amount owed, length of credit history, types of credit, and new credit. With payment history, the most basic tip to improve your credit is to pay your bills, and pay them on time. Your payment history makes up the largest portion of finding your credit score, so it is absolutely crucial that you have the ability to make your payments. If you are having trouble here, you can contact a credit counselor who will assist you in creating a plan that works.
The amount of debt you owe is another key factor in having good or bad credit. If you have revolving credit, such as a credit card, you should know that this type of account has a credit limit. The closer your balance is to the credit limit, the worse your credit score will be. For starters, get your debt to credit limit ratio below 50%. Eventually, you should shoot for a much lower ratio, somewhere below 25%. You might not be able to get there in one step, but having a plan to gradually lower your outstanding balance will ultimately be good for your credit’s health.
You should open a new credit account only if you need it. While you can improve your credit score by having multiple types of credit, you need to be able to handle each account properly. If you can’t handle any new debt, you should stick with what you already have.
Finally, in the realm of credit history, you need to maintain your oldest line of credit. Having a line of credit for a long period of time can boost your score, so look at improving the oldest account first, if necessary. Once you’ve gotten back on track with this account, do not close it! Your credit score is also affected by your most recent information. Credit bureaus like to look at what has happened in the past couple of years. While something like a settlement or a judgment can stay on your credit report for up to seven years, anything that has happened within the past few months will have a greater impact on your score. So, maintain your oldest account, but also work to get balances on new accounts lower. You will want to work on one account at a time to avoid further frustration. I hope these tips will help you improve your credit.
Debtors Unite provides credit help tips and information as a public service.
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