How to Improve Your Credit Score and Fix Poor Credit

By Pinyo, on May 27, 2009

Regardless of your financial situation, your credit score is an important aspect of your finances. This is especially true if you’re planning to borrow money for any reason. With a better credit score, you could get better interest rates and terms on your mortgage, car loan, and other type of loans. As such, it’s a good idea to do what you can to raise your credit score.

If you don’t know your score yet, here’s how you can get your credit score for free. It only takes a few minutes to sign up and find out.

How Your Credit Score Is Determined

Before you can improve your credit score, you should have a basic understanding of how your credit score is calculated. In general, there are 5 key factors that influence your score.

Graphic from myFICO’s About FICO scores page

Improving Your Credit Score

Now that you know how your credit score is determined, it’s easier to put together some guidelines to help you improve your credit score.

Payment History

• Pay on time and avoid late payments. The easiest way is to pay as soon as you get the statement or schedule your payment in advance. If you still make your payments by mail, read this article on how to avoid late payments by using proper envelope.
• Avoid collections. Make sure you can make your payments before adding to your debt.
• Avoid bankruptcy. Bankruptcy stays on your credit report for 7 to 10 years.

Credit Utilization

• Don’t max out any of your credit cards.
• Don’t get store credit cards which often offer low credit limits — sometimes equal to your purchase amount, which automatically gives you 100% utilization rate for that card.
• Ask for higher credit limits.
• Pay down your debt.

Length of credit history

• Keep your old credit cards around. Don’t close these account even if you don’t use them (unless you have to pay a fee).

Credit Mix

• There’s no sense in getting into debt just to improve your credit mix, so I’d just let this one be.

Credit Inquiries

• Understand the difference between soft pull and hard pull. Avoid activities that create a hard pull because these impact your score negatively.

It’s important for you to note that it takes time for your credit score to improve, so please be patient.

Do you know another credit score improvement tip? Please share yours here.

Do you know your credit scores? Get instant access to your credit score for free with Credit Sesame.

Pinyo is the owner of Moolanomy Personal Finance and an entrepreneur with over 20 years of business experience. He is interested in business management, investing and wealth management. He has written for many online publications, including American Express Currency and U.S. News Money. You can follow him on Facebook and Twitter.

Add Your Question or Comment (9 Comments)

1. Anthony:

   May 28, 2009 at 5:07 am

   Excellent advice. Poor credit scores add to the burden of this recession.
2. craig:

   May 28, 2009 at 12:28 pm

   After recently reading I Will Teach You to be Rich I used one of his techniques to hopefully raise my FICO score. I have no CC debt and pay on time every month and called up and asked them to raise my credit limit. I have no need for the raised limit other than it betters my ratio and could help my score a bit.
3. Patrick:

   May 28, 2009 at 2:26 pm

   Very solid tips! The only things I will add is to have both diligence and patience. It can take some time to see your score change, and how quickly and how much your score changes depends on many factors.
4. Pinyo:

   May 28, 2009 at 2:51 pm

   @craig – Thank you for sharing that tip. I saw it on Bargaineering as well.

   @Patrick – Great add. I think I’ll update my article so people will know that it takes time for the score to change.
5. Siege:

   May 29, 2009 at 12:21 pm

   Uh… While I agree that a good credit score is better than a bad credit score, the only thing a good credit score means is that you like debt and are successful at managing lots of it. So I disagree with the opening sentence. I don’t feel my credit score is an important part of my finances. I’ve put financially sound principles into my life over the past years and was able to pay cash for my last car. My goal is in 3-5 years have my mortgage (my last debt remaining) paid off at which point all future house purchases will be in cash.

   So while these principles might be good for someone with a low credit score who is trying to buy a house, the ultimate goal should be no credit score at all.
6. DDFD:

   May 30, 2009 at 9:15 am

   Solid advice, but there is a great deal of time and patience involved in improving scores . . .
7. Gordon:

   August 4, 2009 at 6:25 am

   Knowing about the various constituents that constitute your credit score makes credit score repair an easier process.
8. beryl maureen hammond:

   January 22, 2010 at 8:59 am

   knowing how your credit score is determined makes it easier to improve your score.
9. Charles Baratta:

   October 20, 2010 at 4:43 pm

   This really can be an issue with a small business owner attempting to obtain an sba, or traditional small business bank loan for working capital to grow or finance their business. In these times many merchants we talk to, have beaten up their personal credit pretty badly, hence low fico scores. However, as a merchant business cash advance funding group, we are able to get businesses the money they need, to stay in business. There are some great tips videos on my blog.