by Srikanth Radhakrishna

Created on: August 28, 2010

Credit score is a numerical expression of an individual's credit worthiness.  FICO score is the most widely used credit score model in the United States of America.  Credit score is a three digit number ranging from 300 to 850.  A survey shows that more than 30 million people in the United States have credit scores less than 650, which is considered bad.  Lenders (banks, credit card companies, etc) refer to credit scores before approving loans.  Lenders will get a fair idea on the individual's ability to repay loans by looking at his/her credit scores.  So it is in your interest to be aware of your credit score and to ensure that it is healthy.

Here are some steps to improve your credit scores:

1)  Pay your loans as committed:  If you have any installment loan (mortgage, student, car, etc), make sure that payments are made as per the contract.  Missing payments will have a negative impact on your credit scores.

2)  Pay your bills on time:  Paying your bills after due date will adversely impact your credit scores.  If your bills are over due, contact the concerned organization and make payment arrangements to minimize the damage to your credit scores.  

3)  Avoid debt:  Avoid taking multiple loans.  It is likely to have adverse impact on your credit scores even though you may be paying installments on time.  

4)  Use your credit card smartly:  Avoid using your credit cards extensively.  Use it only when necessary.  Excessive use of credit card will harm your credit scores.  Maintain your credit card in such a way that your balance is around 30% of your credit limit.  Never ever make the blunder of decreasing your credit limit from your end..  

5)  Scrutinize your credit report:   Make sure that you go through your annual credit report for any discrepancy at least once a year.  You may request for a free credit report online using the link www.annualcreditreport.com if you are in the United States of America.  

6)  Avoid consolidating your accounts:  Transferring balances of all your cards into one card will adversely affect your credit scores.  

7)  Use your good will:  If you have been paying regularly, you may ask your lender to erase one of your late payments.  It may not have a huge positive impact, but something is better than nothing.

8)  Use cash:  Try using cash at least for some months till your credit card dues are paid.  It will also give you a better idea of your income and expenses.

Credit score of 700 or above is considered good.  Implementing the above steps will take your score there over a period of time.  

Reference:

http://www.federalreserve.gov

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