Improving your credit score isn’t something that happens overnight but by following the suggestions below you should be able to raise your credit score over time.

Don’t Pay Your Bills Late

Your payment history is the most heavily weighted factor that goes into your credit score so make sure you’re at least making your minimum payments.  If those are more than you can afford sometimes the companies you owe money to are willing to put you on an extended payment plan.

Maintain Low Credit Card Balances

The next most important factor making up your credit score is the percentage of your available credit that you borrow.  If you’re constantly using up over 30% or 40% of your credit available you will be deemed a higher risk.

Build Credit History

The average age of your credit accounts is the next biggest component of your credit score.  If you add a bunch of new credit and cancel old cards this will drag down the average age of your credit accounts and your credit score along with it.

Use a Mix of Debt

This matters because companies look at the different types of debt that you have and weigh some more heavily than others.  For example, your credit card debt carries more weight than your mortgage or car loan.

Reduce New Credit Lines

Credit reporting agencies Experian, Equifax, and TransUnion monitor for attempts to open new lines of credit.  Each time a lender does a hard pull on your credit report that credit inquiry is noted and the more you have the worse an effect it can have on your credit score.

The new credit card rules that were signed into law as part of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act a few months back will certainly offer some help to consumers in their effort to manage credit card debt.

Before we cover some ways that the new bill can help you with payment policies and interest rates, we have to remind you of one thing. Although the new rules will change the way credit card companies increase interest rates and set their payment policies you still want to pay off your credit card debt as soon as possible.  Recent changes to the major credit score system, FICO scores, penalize cardholders who keep high balances on their cards more extensively than before.

Good news for parents worried about their kids and plastic

According to United College Marketing Services, a company that markets credit cards to college students, the average college student receives between 25-50 credit card solicitations per semester. 

The new law will, among other things, keep credit card companies from offering free merchandise to college students in exchange for signing up for a credit card account from an offer made on or near campus. It will also keep issuers from sending new cards to students who haven’t actually applied for cards.  Hopefully this will reduce student debt and be a good thing for college graduate credit scores.

More time to pay

The law states that issuers will have to give customers “a reasonable amount of time” to make their payments on monthly bills. When the law goes into effect, cardholders will now have due dates at least 21 days after they are mailed or delivered.  The current requirement is only 14 days. 

Double-cycle billing to end

Some issuers actually calculate finance charges for a current month’s bill based on days in the previous billing cycle as well as the current one, which racks up the finance charges. That will stop once the new law starts.

You might see your rate go up, but at least you’ll get notice

In the first year you have a card the credit card company needs to give you all the terms that will apply to your card in that first year, and they’ll have to hold your rate steady unless you’re more than 30 days late in making payment.

For any card account held after that one-year anniversary, issuers can raise your interest rate as long as they give you 45 days’ notice and any increase can only apply to new balances recorded after the start date of the new rate.
 
Your payment will go to high-interest debt first

If you have credit card balances at different rates on a single card, your payments are typically applied to the lowest-rate balance meaning your higher-rate balances will continue to accrue interest at that higher level.

Once the law kicks in, the credit card companies will have two choices – to either apply your payment to the highest-rate balance or to divide the payment proportionally to each rate level. It might be worth a call to your issuer after the law becomes effective to find out which system they’re using.

More disclosure on minimum payments

If you’re making only minimum payments on credit card debt, it’s like keeping your balances frozen indefinitely. Credit card issuers will have to tell cardholders how long it would take to pay off the entire balance if users only made the minimum monthly payment.

Issuers must also provide information on how much users must pay each month if they want to pay off their balances in 36 months, including the amount of interest.

Fee relief for subprime cards

Credit cards awarded to people with subprime credit typically offer low spending limits with very high fees to the extent that some users may spend half their balance on fees alone. Under the new law, the initial fees can be no more than 25 percent of the card’s credit limit, and in the first year, no more than 50 percent of the original credit limit can be used to cover fees.

Keep in mind that these provisions will likely come as a cost to more conservative users of credit. To make up the shortfalls in revenues these changes will bring, experts expect issuers to raise annual fees and cut back on credit card rewards programs, particularly for customers who pay off their balance each month.

This post about the new credit card regulations is produced in association with the Financial Planning Association (FPA), the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning.

One potential way to improve your credit score is to look through your credit reports for any misreported information, such as a late payment, and dispute your credit report. 

1) Start off by getting a copy of your free credit report and looking for any errors.

2) If you find anything, check to see if the mistake shows up on your reports from other credit bureaus. You will need to file separate disputes with each credit bureau that shows the mistake.

3) Go to each bureau’s Web site for instructions on how to file a dispute, what happens after the bureau receives a dispute, and what actions to take if you think your identity has been stolen:

• Equifax
• Experian
• TransUnion

4) Clearly identify each error in the report and explain why you think the information is wrong.
Keep detailed records of what corrections you requested, along with copies of supporting documentation.

5) Don’t send any original documents if you submit your dispute in the mail; make photocopies and send those instead. 

6) Keep a record of when and how you contacted each credit bureau, noting any follow-up phone calls and the names of the people with whom you spoke. In case the correction isn’t resolved smoothly, these records and notes will come in handy.

7) If you find any evidence of identity theft, such as an open account that you know you never opened, make sure to follow the credit bureau’s instructions for reporting identity theft.

The credit bureau should respond to your dispute in writing within four to six weeks. If the bureau agrees with you, the bureau will correct the mistake. If there is a dispute over the corrections you’ve requested, or if you think that someone has stolen your identity and is using your credit, be prepared for a long period of back-and-forth communication with the credit bureau and your creditors.

The burden of proof lies with the bureau, if it can’t prove that the information in question is correct then it has to delete it. However the process of resolving a dispute or unraveling a case of identity theft can be complex and lengthy. Good luck!

Your FICO score is the credit score used by 90 percent of the lenders in the United States to determine whether or not they want to lend you money. A FICO score is a three digit number that runs from 300 to 850. The higher your credit score, the better your chances are for loan approval—and the better terms and conditions are for the loan.

Calculating FICO Scores

Now that you know what a FICO score is you’re probably wondering how it’s calculated. The FICO score breakdown looks like this:

Payment history (35%): Making your payments and making your payments on time.

Balances (30%): The more manageable levels your outstanding balances are, the better off your credit score is.

Credit History (15%): The length of your credit relationships are important. The longer your relationships with credit card companies, mortgage lenders, auto loan providers and more, the better.

Credit Types (10%): Your credit score is also determined by the various types of credit you have. High credit scores come from having various types of credit such as mortgages, credit cards, student loans, car loans and more. It’s about your ability to manage different types of credit so if you only have a credit card then it doesn’t speak to your ability to manage various types of debt.

New Credit (10%): The final portion of the FICO score credit calculation is establishing new credit. You can tackle two portions of your credit score at once by applying for new credit that is a type of credit you don’t have.

Good FICO Scores vs. Bad Scores

With the current credit crunch in full swing, what used to be considered a good credit score (in the 700s) may now be considered low by lenders since they’re more risk averse.

• Good credit scores are those 750 and higher
• Mediocre credit scores range from 650-749
• Scores from 300-649 are considered bad credit

How can you find out your FICO score?  Experian, which is one of three three major credit agencies teamed up with FICO, so you can request your score at the Experian site or MyFICO. Be sure you check into the ways you can get a free credit report.

Improving Your FICO Score

If your FICO score is low, concentrate on improving your credit score by concentrating on the five areas that factor into the score. First, make sure you always make your payments and make them on time. Second, pay down or pay off debt so that it’s at a reasonable amount for your income level.

Do not close old accounts because you don’t use them anymore; keeping them open can help boost your credit. Also be sure to establish new credit once in awhile to keep your credit file fresh and mix it up a little by making sure that the credit you have is diversified.

Now that you know what your FICO score is and how important it is for obtaining credit approval be sure to take the necessary steps to maintain or improve your credit score. Especially in a credit crunch, your FICO score may make a difference between getting approved for a loan or getting denied.

Your credit score is probably one of the most frequently used and misunderstood numbers in your life. Trying to figure out how to improve your credit score can be frustrating, in fact, there’s enough information about credit scores to fill a whole book!

Liz Pulliam Weston shares a little about the updated version of her book, Your Credit Score, Your Money & What’s at Stake, as a follow up to the FNBO Direct Pay Yourself First challenge.

Here was my question for Liz. Your last book, “Your Credit Score, Your Money & What’s at Stake“, is an in-depth look at how a consumer’s credit score can impact their finances. You recently came out with an updated version to address issues people are experiencing due to the recession and credit crunch.  What are the most important updates that people should be aware of regarding their credit?

Credit card companies are slashing credit limits, which can have a negative impact on your score. If you have good credit, it’s important to push back against these limit cuts.

I also recommend people start diversifying their credit, just like they diversify their investments. If all your credit cards are with a single issuer, you’re at the mercy of that issuer’s policies

Tomorrow we’ll take a look at my last question for Liz. I know a lot of people have lost their jobs or are struggling financially due to the bad economy. She shares her thoughts on what changes she would make to stretch her dollars if she suddenly lost her job.

Your credit score when you graduate from college is largely based on decisions you made while in school.  Those choices and your resulting credit history may impact some of the first things you do after graduation such as renting an apartment or buying a car.  We’ll take a look at some of the things that may have damaged your credit report and some steps you can take to get your credit on track.

Credit Score Issues

No Credit History. One of the biggest issues college graduates face is their lack of credit history. Credit reports and scores thrive on your payment history and your ability to manage your finances. If you haven’t had a mortgage, loan, or credit card that you’ve had to make payments on then lenders don’t know how you’ll handle a loan if they give you one.

Credit Card Debt. One of the most frequent vendors that setup on college campuses are credit card issuers getting you to sign up for your own credit card. This is a great start for establishing credit history if you use the card wisely, make payments on time, and do not charge more than you can afford to pay. Those who use the card to charge items they cannot afford usually leave college already in credit card debt and with poor payment history.

Student Loan Debt. Combined with credit card debt, many college grads start their new life in student loan debt. Student loans usually have deferred payments until six months after graduation, but you’re already in debt for what may amount to tens of thousands of dollars.

No Employment History. To top it all off, you may be graduating without a job. This means you don’t have the ability to make payments for any debt you have. Unfortunately, even if you have a job, your job history probably isn’t long enough to make you look like a good credit risk.

Building Credit History

Get help from Mom and Dad. Start building your credit as soon as possible. Ask Mom or Dad to add you as an authorized user for one of their credit cards. Use the card to make purchases that you can afford to pay. Then pay off the balance on a monthly basis or make payments and make them on time.

Only take on what you can manage. It’s about building a credit history, which means using the card and paying it off, not maxing the limit and burying yourself in debt that causes your credit score to plummet. If you can manage a credit card payment, then this is the first block for building a foundation. It’ll help you get approved for other types of credit such as an auto loan or furniture credit account.

Always pay on time. No matter what you are paying for—rent, car payment, credit card payment or electric bill, make your payments by the date they are due. One of the biggest factors used to calculate your credit score is your history of making payments on time.

Build an emergency fund. This won’t directly impact your credit score but having an emergency fund gives you a financial buffer you can rely on to pay bills if you lose all your income.  Paying from this fund can help prevent you from missing payments or charging up your credit card balances.

Whether you’re graduating this year or you have some time left, there are ways you can build good credit. Applying for various types of credit and loans helps to start building your credit history. Be sure that the credit you apply for and use is paid for, on or before the due date. Don’t wait to start building your credit history because you’ll need to rely on it when it comes time to get a loan for a car, house, or business.

This post on credit scores for college grads is part of a series on personal finance for college graduates.  Some of the other topics covered include auto insurance for grads, budgeting, health insurance after college, and getting started investing.

Improving your credit score can be simple if you know what steps to follow.  If you have poor credit, bad credit, or simply want to improve your credit score, there are specific steps you can take to make it happen. Your credit score is computed mainly using:

• your payment history
• type of credit you have
• length of your credit history
• your outstanding balances
• new credit you’ve established

Each of these items is weighted differently, but tweaking all of them can play a role in increasing your credit score. If you can take these five steps you should see your credit score increase.

1. Make payments on time and pay down your balances.

The biggest contributor to your credit score is your payment history. This means that if you do nothing else, you have to make your payments on time. Find a payment system that works for you and make sure your payments are received on or before the due dates.

It also helps to pay down the balances of your outstanding debt. This doesn’t mean paying off the debt completely. It’s about your ability to manage your debt, so making payments that reduce your outstanding balances also raises your credit score.

2. Leave your credit accounts open.

The longer your relationships with creditors or lenders, the better off your credit score is. Do not fall into the trap of closing unused accounts or completely paying off credit and loan accounts thinking it will increase your credit score. Leave your credit accounts open, if you don’t use them.

The longer your credit relationships are, the higher your credit score. It’s important to note that you also have to have a good relationship–a good payment history–combined with the longevity of your relationship with the creditor.

3. Diversify the types of credit.

Again, your credit score is an evaluation of your ability to manage your credit, so another way to give your credit score a boost is to diversify the types of credit and loans you have. A good mixture of credit cards, mortgages, car loans, and student loans–a variety of credit–illustrates your ability to manage various types of credit. If you only have one type of loan, apply for different types of credit to diversify your mix.

This doesn’t mean run out and start applying for various types of loans, but apply where appropriate. For example, when you buy your furniture, apply for the furniture store credit account instead of buying it with your credit card or paying cash. You can then simply pay off your store card with your cash.

4. Clean up your bad credit.

Review your credit report at least once a year. Look for negative items such as late payments, collection accounts and discharges–all items that drag down your credit score. If these items appear on your credit report and they are accurate, make arrangements with the creditors to pay off this bad debt.

If these items appear on your credit report but are inaccurate, dispute the items with the credit agencies to have these items removed. Over time, getting rid of these negative marks on your credit report increases your credit score.

5. Create new credit.

As much as your credit score jives on long-term credit history, it loves new credit too. Applying for new credit once in awhile also gives your credit score a boost. Combine your application for new credit with diversifying your mix of credit and you can accomplish two goals at once.

Credit scores can seem complex at times but since they’re determined by a formula that means there’s a formula you can follow to help improve your credit score.

Before you make any changes, get your free credit report so you can see where your score stands today.  Then start working on these five steps and you should see your credit score increase over time.