If you can improve your credit scores, you will probably spend less money, perhaps hundreds or thousands of dollars less each year.
Here is how to raise your scores, so you can receive the best financing rates and deals, better rates on insurance and all the other benefits of having a high credit rating.
*What's a good score?
You have many credit scores. By far the most important are your FICO scores with each of the three major credit bureaus, Experian, Equifax and TransUnion. A mediocre score is 700, while a score above 750 should get you all the best deals and borrowing rates, said John Ulzheimer, president of consumer education for Credit.com and author of the book You're Nothing but a Number.
*Know the ingredients.
Oddly, your credit score doesn't care about your net worth, your income, how much money you have in the bank or even whether you pay off your credit-card bill in full every month. The scoring system only cares about what credit lines you have open and how you have been using them.
*Understand the breakdown.
The exact formula for calculating FICO credit scores is a secret, but we know that the biggest factor is your payment history. Paying your bills and loans affects 35 percent of your credit score. The amounts you owe account for 30 percent. The length of your credit history is 15 percent. Applying for new credit counts for 10 percent, as do the different types of credit you have.
*Fix mistakes.
There's really no such thing as "credit repair," as you might have heard advertised. Either you have mistakes on your credit reports or you don't. Disputing incorrect negative information is free and, in most cases, easy. Dispute mistakes while accessing your reports for free once a year at www.annualcreditreport.com.
Negative information, such as late payments, repossessions and bills in collection, can stay on your report for seven years. A bankruptcy can stay for 10 years. Some credit-repair companies will dispute all the negatives on your report, hoping creditors won't respond in the required 30 days. That will result in removal of the negative item from your report, at least until the creditor responds. Credit bureaus are wise to that strategy, so it doesn't necessarily work, Ulzheimer said. And if you wanted to use that tactic, you could just do it yourself rather than paying a credit-repair service.
*Pay bills.
Paying your bills on time, every time, won't raise your score, but it will keep it from dropping.
