Doing More To Increase Your Credit Scores

Ask yourself this question: If you were to apply this second for a loan, how confident are you in your credit scores? If you're not confident or have to think about it, you may need to find and implement ways to improve credit scores so you can apply with confidence.

Still not convinced? An applicant's score is used more often now in employment considerations as well as insurance applications and other services requiring payments. Learning how to increase your credit scores may make it easier to receive acceptance, get the best rates and may make the application process a little less stressful.

There are several ways to improve your scores besides paying your debts on time. Below are five tips to help you get started in the right direction.

1. Obtain a current copy of your credit report and credit scores. Obtaining this information is the first step in reviewing your current credit profile and determining what, if any, steps are needed to improve your scores. Consumers can receive one free credit report from each of the three consumer reporting agencies (Equifax, Experian and TransUnion) once per year. Credit scores are generally available at a cost but may be bundled with free or low-cost trial periods with other credit services. A report may also be included when you order a score.

2. Dispute inaccurate information on your credit report. Now that you have your report, look for information that is inaccurate or not corrected. You have the ability to dispute this information by writing to the creditor and the consumer reporting agency and requesting that they correct it. Providing copies of supporting documentation with your letters may also help your case. Please note that all of your correspondence should be in writing, and do not send original supporting documents, just copies. Having inaccurate information removed from your report is one of the best ways to improve your scores.

3. Decrease your credit utilization ratio. It sounds rather complicated, but decreasing your credit utilization ratio can be accomplished by simply paying down balances on revolving debts (credit cards) and/or requesting an increase in the maximum credit limit (while keeping the current balance the same or lower). High balances on revolving accounts are viewed negatively by credit scoring models. By decreasing the ratio of balances owed versus maximum credit limit, you may effectively be able to increase your scores.

4. Diversify your accounts. Once you've received and reviewed your credit report, count and see how many different account types you currently have open (revolving, installment and mortgage). Credit scoring models take into consideration how diverse your credit portfolio is, and not having a good balance of accounts may lower your scores. When developing your core set of accounts, consider opening installment as well as revolving accounts and maintain a good balance. Diversifying your accounts is one of the best ways to improve credit scores.

5. Don't open or close too many accounts at once. Scoring models like to see stable, longstanding and a diverse set of accounts with a satisfactory payment history. Opening too many accounts at once will lead to several accounts on your report with little or no payment history, which may lower your scores. Closing too many accounts at once can cut into your core set of accounts, which you may have knowingly or unknowingly used to increase your credit scores. They key is to develop a core set of diverse accounts that will remain open for several years with good payment history.

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