7 Steps to Improve Your Credit Score

Maybe its the new year or you've finally figured out exactly how much money you paid out in interest on credit cards, auto loans and mortgages last year that made you finally say "enough is enough". To help you take full advantage of this light bulb moment, here are 7 steps you can take right now to raise your credit score.

1. Review your credit report at least once every 12 months. Under federal law, every year consumers can receive a free copy of their credit report from each of the 3 major credit bureaus. If you've been denied credit within the last 30 days, you can also receive a free copy of your credit report. What to do if you've already received your free annual credit report or you haven't been denied credit in the last 30 days? You can order order your reports online from Equifax, Experian or Trans Union. You could also order yours from MyFico.com.

2. Know your credit limits and pay down your credit card balances to 25 - 30 percent of your total available credit. Doing this is one of the quickest ways to increase your FICO score. Doing this will improve your debt owed to credit available ratio, which accounts for 30 percent of your score.

3. Transfer your balances. Don't have the cash to pay down your credit card balances? Consider transferring your credit card balances to other credit cards that currently have a zero balance. Moving balances around could backfire on you if you don't understand the terms & conditions of the offer and you don't pay off your balance during the teaser rate period.

4. Pay your bills on time. You've heard it before, but the best thing you can do raise your credit score is to pay your bills on time. Make sure you know the exact due dates and set up payment reminders for yourself. Better still, set up online payments or auto-drafts to avoid late payments and late fees.

5. Dispute easy credit reporting errors. Contact the major credit reporting agencies to correct any errors in your name, social security number or current address. You can do this by phone, online or through the mail. Many credit experts recommend that you make such disputes in writing because you are establishing a paper trail. The credit reporting agency has 30 days under the Fair Credit Reporting Act to investigate and take action on disputes.

6. Dispute trade line errors on your credit reports. Contact the major credit reporting agencies to dispute any inaccuracies in your paid trade lines. In particular, you want to go after paid in full accounts mistakenly listed as charge-offs, collections and late pays. As with step 5, make these disputes in writing. Be careful of how you dispute these items. Your FICO score could drop if an aged paid account is mistakenly deleted because of the way you disputed the trade line. Be sure to tell the credit bureau exactly what action you want them to take.

7. Piggy backing. Have a spouse or a close relative with an excellent credit history? Ask them to include you as an authorized user on one of their credit cards. Their excellent payment history and usage could boost your FICO score in 90 days or less. To minimize the risks involved, have the additional card and PIN sent to the primary user, not to you

Bonus tip: Don't close any old, unused credit cards. If the balance on that card is zero and you've had it for 2 or more years, its a plus for you because of the length of time you've had the card and the zero balance helps improve your debt owed to available credit ratios.

Another bonus tip: Apply for new credit only when needed. Always remember that when you apply for new credit, the review of your credit report by a new potential creditor generates a hard inquiry which will reduce your credit score, as well as stay on your credit report for 2 years.

There you have it, 7 solid steps you can take right now to raise your credit score. Keep in mind that with knowledge and effort, a low FICO score can become a good one, and a good score can become a great one. Pay your bills on time, pay down your debts and invest your time and money in gaining knowledge.

2007 Ray E. Harris. All rights reserved.