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How to Raise my Credit Score

By Kenneth Long on October 13, 2010

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Increasing your credit scores by a few points might mean the difference between getting a loan or getting a better rate. Since credit reports can be confusing, you might be confused about where to begin. Follow my lead as I show how to raise my credit score.

Pulling Credit Reports

In order to know where to begin, I need copies of my credit reports. The scoreless report is free, and I can download it at AnnualCreditReport.com. I am entitled to a free credit report from Experian, Equifax and TransUnion each year using the Annual Credit Report service. No score is included.

Ordinarily, I would not need a credit score if I were focused on credit repair. The items on the report are what are important. However, if I am focused on how to raise my credit score, I am definitely going to start with credit scores from each main bureau. I know that I can order my credit scores through a third party service or I can pay the additional 8 bucks or so that credit bureaus normally charge to add the score onto the free credit reports issued through the Annual Credit Report service.

Dispute Incorrect Information

Since disputing incorrect items is free, I start here. Removing even one negative account could make my scores jump considerably. Once I have received my credit reports, I know that I have 30 days to dispute information that I believe to be incorrect.

I am focusing on any account that shows negative information, and I am looking to see if there is anything that I believe I could dispute. Perhaps I paid an account off but it still shows that I owe an outstanding balance. This is quite common with collection accounts, so I am especially focused on those. Also, I am looking for any signs of fraud. This is something that I do at least every year so that I can prevent identity theft.

Finally, I am looking for any accurate negative record that was placed there by a creditor or debt collector that went out of business. While the debt might be accurate, a dispute is likely to go unanswered and may therefore be deleted even though it is valid. That's what I call a lucky break.

Maintain Current Payments

During my quest for the perfect 850 credit score, I know that no amount of credit repair can offset the damage caused by falling behind on my payments. Therefore, I make sure that all current accounts remain in current status. My secret to a perfect payment history is the use of automatic payments. My mortgage and car payments are drafted by my lenders directly from my savings accounts. Funds are deposited directly into those savings accounts as a part of my split direct deposit which is offered by my employer. I know that even if my employer didn't offer this benefit, I could still set up automatic transfers between checking and savings through my bank. Finally, I use online bill pay services to make and track payments. I don't even have to use a stamp!

Resolve Negative Accounts

To resolve a negative accounts, I need to first decide which accounts to start with. Any collection account that is older than 5 years is automatically at the end of my list. This is especially true if the statute of limitations for that debt has already expired. While the statute of limitations has nothing to do with credit scoring, it still has important legal implications. I know that more recent accounts are going to have a greater impact on my credit scores. Therefore, I want to focus on my delinquent accounts first, bring each of them current and maintaining current status. My recently defaulted debts are second. I can choose a full payoff, negotiating debt settlement offers or a pay for deletion agreement. I understand that making payments on defaulted debt is definitely a bad idea, and I would only entertain that as a last ditch effort to avoid legal action.

Pay off Debt

Since I understand that 30% of my credit scores are based on how much debt I owe, I definitely want to eliminate my debt so that my scores can increase. I know that mortgage debt is the least damaging followed by a car loan, so my first focus will be on unsecured debt. Credit cards are the most important factor when considering the impact of debt on credit scores.

Any credit card that is maxed out will be first on the list. I must pay down the balance so that I can reduce my credit utilization rate on the account. My ideal utilization ratio should be under 10%, meaning I owe less than $1,000 on a card with a $10,000 credit limit.

Of course, I also know that the cards with the highest interest rates are draining more cash out of my budget than any other. I make sure that I increase my payments on my highest APR accounts so that I can speed up the process of getting out of debt.

Throwing more money at debt is a great way to resolve my situation, since it means I will have more money for other things once I am debt free. If I am unable to increase my monthly payments, then I know that I need credit counseling right away before things get worse.

Sometimes it is helpful to get additional information from a credit counselor who is trained to evaluate an individual situation and identify possible outcomes. A second set of eyes might find a mistake that I made in my budget. I may be unaware of changing policies of certain creditors which could speed up or slow down my debt repayment. I may even be a candidate for a debt management program, giving me the breathing room of lower monthly payments while still accelerating my debt repayment through interest rate reductions.

An improved credit score can open up new lending possibilities. It can improve job prospects. In most states, it can even reduce my insurance rates. I might be well on my way toward financial greatness, but I still make sure that I learn from my past mistakes while forging ahead in a new direction. Follow some of our other tips by reading some of our debt help articles or reviewing our how to section.

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