What one thing will improve your credit score the most?

How to Raise Your Credit Score

Dozens of things can improve your credit score, but one thing helps more than anything else: always paying your bills on time. Because payment history makes up the biggest percentage of your score (35 percent), it makes sense that you should focus your attention on that factor.

If you are dismayed that this is not a quick fix, take heart: This strategy has short-term advantages. That's because your recent credit history actually carries more weight [source: Weston]. In other words, if you plan to ask for a loan in the next year, and you are late on a payment in the meantime, it will hurt your score more than a late payment from a few years ago [source: Sahadi].

In addition to paying your bills on time, you can bump up your score a few other ways. For instance, the amount of debt you have represents 30 percent of your score, so if you can pay down debt, you will give your number a significant boost. You also can try to lower the ratio of debt-to-credit limit. This means that you should keep your credit card balance below 25 percent of your credit limit [source: Lankford]. If you're worried about opening new accounts, ask your current credit card company to raise your limit. You also can keep the debt-to-credit ratio low by keeping old credit card accounts open, even if you aren't using them [source: Sahadi].

Keep in mind that reporting agencies make mistakes. Errors occur frequently, especially for the John Smiths out there or anyone else with a common name [source: Huddleston]. If you discover an error, you can dispute it and perhaps improve your score dramatically.

Late payments aren't the only thing that can drag your score down. Surprisingly, even unpaid parking tickets or library fines can lower it. Taking out new loans looks bad -- not only because it increases debt, but also you look desperate when too many lenders inquire into your score. However, if many lenders inquire within a short time (14 or 45 days, depending on the FICO formula used), the score counts this as one inquiry, as it's assumed you are shopping for a single loan [source: myFICO.com]. These are referred to as hard inquiries, and can only happen with your permission. Soft inquiries, on the other hand, such as looking into your own score do not affect the number.

Depending on your particular situation, there may be an even more effective way of improving your score. Understanding the process will help you make better decisions about your credit and help you to avoid costly credit counseling. Still have credit concerns? Visit the links below.

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  • Curry, Pat. "How credit scores work, how a score is calculated." Bankrate.com. (Feb. 13, 2008) http://www.bankrate.com/brm/news/credit-scoring/20031104a1.asp
  • Huddleston, Cameron. "How to Fix a Credit Report Error." Kiplinger.com. (Feb. 13, 2008) http://www.kiplinger.com/basics/archives/2002/05/story15.html
  • Kim, Jane J. "Default Lines: The New Math of Credit Scores." The Wall Street Journal. Dec. 19, 2007. (Feb. 13, 2008) http://online.wsj.com/article/SB119802346920538029.html
  • Lankford, Kimberly. "Boost Your Score." Kiplinger.com (Feb. 13, 2008) http://www.kiplinger.com/magazine/archives/2006/03/credit.html
  • myFICO.com. "Credit inquiries." (Feb. 13, 2008). http://www.myfico.com/CreditEducation/CreditInquiries.aspx
  • myFICO.com. "What's in your FICO score." (Feb. 13, 2008) http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx
  • Sahadi, Jeanne. "Improve your credit score." CNNMoney. (Feb. 13, 2008) http://money.cnn.com/2002/02/15/debt/q_fivethings_creditscore/
  • Weston, Liz Pulliam. "Beef up your credit score in 5 steps." MSN money. (Feb 13, 2008) http://articles.moneycentral.msn.com/Banking/YourCreditRating/BeefUp YourCreditScoreIn5steps.aspx