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Burdened by bad credit? 7 tips to boost your score

Don't let poor credit hold you back. Kimberly Lankford of Kiplinger's Personal Finance magazine and author of "Ask Kim for Money Smart Solutions," shares seven easy tips to keep your credit score strong.Your credit score has a huge impact on your personal finances, especially now that it’s tougher to qualify for loans. If you have a good score, you can take advantage of today’s low mortgage rates. If you have a bad score, you might not be able to get a loan at all. Your credit score also affects the rates on your credit cards, car loans and insurance premiums, as well as your ability to get a job, rent an apartment or take out a cell-phone contract.

Despite the importance, people tend to make big mistakes when trying to improve their credit scores. Here are seven easy steps you can take to boost your credit score.

Fix your credit report
The fastest way to raise your score is to fix errors on your credit report. Go to www.annualcreditreport.com to get a free report from each of the three credit bureaus every 12 months. It’s important to fix mistakes on all three credit reports. You have a separate credit score based on each bureau’s report, so your scores could be very different if one report contains errors.

Mortgage lenders usually get all three scores and use the middle one. Other lenders and businesses may only use the score based on one bureau’s report. If you’re about to take out a mortgage very soon, see if your lender can get your credit record fixed quickly. Credit bureaus generally have up to 30 days to investigate disputes with consumers, but some lenders work with special services that can get credit reports fixed in as little as 36 to 72 hours.

Pay your bills on time
About one-third of your credit score is based on your payment history. If you’re having trouble paying the total balance, pay at least the minimum by the deadline. Making that deadline is more important to your score than the amount you pay (although the more you pay off, the less interest you’ll owe). If you do miss the deadline, pay up as soon as possible, the later you are, the more you’ll hurt your score.

Keep your balances low
Another big part of your score is the share of available credit you’ve used. Lenders get worried if it looks like you’re maxing out your cards. Keep card balances below 25 percent of the credit limit, 10 percent is even better. It’s the amount you charge that counts, even if you pay the balance in full every month.

Don't close old accounts
Keeping old accounts with a good record can help because the age of your oldest card and the average age of your cards are key elements of your score. Closing accounts also lowers your overall credit limits, which makes it look like you’re closer to maxing out your available credit. If you do want to close some accounts, especially ones with high annual fees, close only one every few months and don’t close any accounts within six months of applying for a loan.

Pay off old debts
Even a small library fine or disputed electric bill can crush your credit score if the debt goes into collection, dropping a high score by as much as 100 points. Now that more municipalities and utilities are sending small, old bills to collection agencies, I’ve been hearing from many more readers whose scores dropped significantly because of a very old bill for less than $100. Even if you pay off the bill after it’s gone to collection, the damage is already done. Negative information generally remains on your credit report for up to seven years, but the impact on your score lessens through time. Don’t lose track of small charges that can come back to haunt you, and pay the bills off quickly before your score suffers.

Order your credit score
You can’t get your score for free, but you can order it when you get a free copy of your credit report at www.annualcreditreport.com. Or you can go to www.myfico.com and get your score directly from Fair Isaac, which created the popular FICO score. Some credit bureaus also offer their own versions of credit scores, which can give you a general idea of how your record stacks up, but most lenders use the FICO score when setting your rates.

Don't ignore your score
Buying or refinancing a house is the biggest reason to be concerned about your score. But your credit score also affects your credit-card rates and terms, car-loan rates and auto and homeowners insurance premiums. Insurers found that people who have low credit scores are more likely to have insurance claims, and your score can have a big impact on your premiums in most states. Potential employers and landlords may also check your record. Don’t worry about micromanaging your score, you’ll usually look good with anything above the high 700s. But your score can affect your personal finances at any time.

For more information about credit scores, see "Demysitfying your credit score" at Kiplinger.com.

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