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How long has it been since you took a look at your credit report? If it’s been a while, might want to pull it and see where you stand. Check out Annual Credit Report to see what work you have ahead of you.

Keep in mind that paying your bills on time every time is the most important step in correcting your credit score. For purposes of credit worthiness, FICO likes to see that you are managing your debt by not having too much of it and paying it down. Focusing on these elements and improving them can improve your credit score dramatically within a few months. When you know how lenders use your credit score and report, you can make a major improvement in relatively little time by focusing on the elements that credit-reporting agencies use.

Understand Your Credit Report

To understand your score, you should know how the banks look at the information in your credit report. There are five elements that the creditor uses to determine your credit worthiness. They are:

  • Payment History (35%)
  • Debt/Amounts Owed (30%)
  • Age of Credit History (15%)
  • New Credit/Inquiries (10%)
  • Mix of Accounts/Types (10%)

Each lender type places a different weight on different elements of your credit report, and FICO uses dozens of credit score models to help lenders extend credit. For example, if you apply for a car loan, the lender may be more interested in how you’ve handled payment of car loans.

Other Helpful Advice  

  • If you do not have a credit card and can not obtain one, ask for a parent or other family member to add you as a co-borrower on their credit card or loan. This will help build credit for you, even if you’re not the one paying the bill each month. Tip: Don’t go this route unless your family member is trustworthy and pays bills on time. If they don’t pay, the creditor will look to you for payment as a co-borrower.
  • If you still can’t obtain a card, consider a secured card. A bank will consider issuing a credit card after you have paid them a security deposit. You will start off with a credit card limit equaling your security deposit, but if you follow the advice above regarding paying on time and not maxing out the card, the bank will likely refund your deposit and increase your credit limit in short time.
  • If you have a delinquent credit account, do your level best to pay it off as soon as possible. Depending on other negative factors, late payments can affect your score for two or more years and while they may not affect your score dramatically, they can stay on your credit report for up to seven years.
  • You can negotiate with your creditor for removal of a late or delinquent payment. If you were only late one time, write them a letter and ask them to remove the late payment notice to the credit bureau. If you still have a relationship with the creditor, offer to sign up for automatic payments. Creditors are often happy to make a goodwill adjustment if you are willing to guarantee they will be paid.

The Bottom Line

Be patient while you focus on improving your credit score. Pay every bill on time and pay down as much debt as you can every month. You’ll build better credit every month, so stay focused on your goal.