Your Cheat Sheet for a Higher Credit Score

Have you looked at your credit score lately? If so, good for you! If not, why? Having a high credit score with the three credit reporting agencies (Experian, Equifax and TransUnion) is the key to getting a mortgage, a personal loan or even a credit card for emergency expenses.

To see your current credit score, you must first get a copy of your credit report from one of the three credit reporting agencies. You can get a credit report from each of the three credit bureaus for free once a year. Once you've obtained your credit reports, then you can review your credit history and credit score to see where you rate on the list of credit worthiness.

Credit scores, also commonly called FICO scores, can range anywhere from 350-850. As you might have guessed, credit scores near 350 are not desirable. On the opposite side, scores nearer to the 850 range are viewed favorably by lenders. The closer you are to 850, the more likely you are to receive a loan (especially in today's shaky economic climate.)

If your credit score needs some serious improvement in order for you to receive a bank loan, don't fret. There are several surefire ways to improve your credit score that won't require you to shell out major bucks to a shady company purporting their ability to "fix" your FICO score for you. Instead, you should ask yourself these seven questions. Answer these questions correctly and you'll be on your way to raising your credit into one that qualifies you for the credit you need.

1. Do you pay your bills on time?

This may seem like a simple question. However, do you pay your bills on time? Answer honestly. If you don't pay your bills on time on a regular basis, you are doing yourself a major disservice in both your wallet and your credit score. Not paying your bills on time can lead to hefty late fees (sometimes as much as $40 for a single late payment.)

In addition, you may not realize that forgetting to pay your credit card bill one month will have lasting effects on your credit score. FICO scores are weighed heavily on different factors, including your payment history. Even one 30 day late payment can result in a dramatic drop in your credit score. If you continually forget to pay your bills on time, it'll have a lasting effect on your credit score and severely dampen your efforts to raise your credit score. Lesson here? Pay on time, every time.

2. Do you have a constant cash flow?

Cash flow is another term for income. If you don't have a consistent income, then your ability to pay your bills is severely limited. Late bills equal lower credit score. Also, low income increases your debt-to-income ratio, which also lowers your credit score (more on that later.)

3. Have you ever declared bankruptcy?

If you've declared bankruptcy in the last seven years, then the chances of having a low credit score are high. Bankruptcy shows lenders that you have taken on more debt that you are able to repay, making you a bad candidate for a loan.

4. How close are you to your maximum credit card limits?

Sure, you may be able to pay your minimum payment each month. However, consistently keeping your credit card balances close to their limits has a negative impact on your credit score. This reflects in your credit score, lowering it significantly.

5. Are your current and recent accounts active?

It makes sense that in order to have high credit scores, you must be using credit. To help keep your credit score high, make sure you have open and revolving credit accounts that you are paying on time to help raise your credit score.

6. How many credit cards do you have?

Yes, it's true that you should keep credit accounts open and active. However, have too many credit cards open can have a negative impact on your credit. A good rule of thumb for a high credit score is to have no more than two to three credit cards open at any given time. Any more than that will show that you are willing to take on a large amount of debt, which isn't good for the FICO score.

7. What is your debt-to-income ratio?

As we discussed earlier, it's important to have income coming in to help you pay your debts. However, if you have too much debt or too little income, then your debt-to-income ratio increases and lowers your credit score. Debt-to-income ratio describes the amount of debt you have in relation to the amount of income you have coming in each month. A good rule of thumb for a high credit score is to keep your debt to income ratio at no higher than 35%.

While putting in the effort to increase your credit score can take some time, it's worth it. Just think about how nice it'll be when you are able to buy your dream home or purchase a new car, all thanks to your high credit score and your ability to work hard to achieve it.