A low credit score can cost you both time and money. If you have poor credit, you will have more trouble getting a mortgage or auto loan. You will have to pay a higher interest rate on a loan than people with high scores. But your credit score changes as new information updates your credit history. Find out how to raise your credit score by managing your use of credit and improving your credit history.
Pay Bills on Time
Your credit score reflects your reliability in paying your creditors. They want to lend to clients who always pay on time. Therefore, begin immediately to pay on time every month, as finance expert Jane Bryant Quinn suggests. Find ways to cut back on monthly expenses to free up money to keep up with your obligations. Cut back on eating out, monthly cable or phone expenses or cancel your gym membership.
Eliminate Errors on Your Credit Report
If your credit report has errors against you, they can lower your score. Get copies of your reports from the three major bureaus and inform them of errors in writing, as Jean Chatzky, the author of "Pay It Down," suggests. Attach copies of proof of payment or any other documents that support your claim. Getting rid of false negative information will raise your score.
Improve Your Credit Use Ratio
According to Kimberly Lankford of "Kiplinger's Personal Finance," about a third of your credit score reflects the ratio of the credit you use to the credit available. If you pay off some of your debt, your ratio will improve. Move cash from savings or money market accounts to pay down debt. Cash in some savings bonds or mutual funds, and put the money toward your debt. Lankford suggests aiming for use of 20 percent or less of your credit.
Raise Your Credit Limits
If you have been a good customer for a credit card company, usually or always paying on time, call and request an increase in your credit limit. If the company grants your request, you will receive a favorable boost to your ratio of used to available credit. This method will improve your credit score at no cost to you.
Watch Your Debt to Income Ratio
Credit bureaus also watch your debt to income ratio. Including your home mortgage, you should owe less than 40 percent of your gross income to debt obligations each month, according to Quinn. Avoid additional borrowing if this ratio is high. Free up money to pay down debt. Sell assets or find extra work to earn money to pay down your debt and improve this important ratio.
Become a Sane and Stable Borrower
Practice good financial management every month. Pay your bills on time, but avoid running up large bills each month even if you can pay them. Liz Pulliam Weston of "MSN Money" says that large charges will count against you. Avoid opening or closing many accounts, but use your long-standing credit cards once in a while. These techniques over time will give your credit record stability and improve your credit score.