5 Steps for Increasing Your Credit Score

If you have a low credit score, it's important that you work to repair it. A low credit score shows lenders that you are not a reliable borrower, so you will have a difficult time getting approved for a mortgage or business loan. A high credit score can also save you tons of money in interest rates in the long run.

Much like losing weight, improving a poor credit score takes time. But, with these steps you'll be able to manage your credit responsibility over time and raise your score.

1.   Request a copy of your credit report – The first step to repairing your credit score is to request a copy of your credit report from AnnualCreditReport.com. The three credit bureaus – TransUnion, Equifax and Experian – are required to give you one free copy of your credit score each year. You should request a different report every four months, so that you can monitor your credit throughout the year and see how your score is improving. Be sure to review your reports to make sure that there are no errors.

2.   Try to pay your bills on time – At 35%, your payment history accounts for the largest percentage of your credit score. Therefore, it's important that you do your best to pay your bills on time. If you are behind on payments, start with the oldest bills and gradually catch up on your missed payments. An account that is 90 days past due will have a greater negative impact on your score than a bill that's 30 or 60 days overdue. If you are still having trouble meeting your payments, you can sell your mortgage notes, business notes or real estate contracts to a direct buyer that will purchase them. You can use the funds that you receive to pay off your existing debts.

3.   Use your credit cards – If you are a responsible credit user (i.e. you pay your bills on time and don't overuse your cards), then you can boost your credit score. If you can't get a traditional credit card, then you can try to get a secured credit card or become an authorized user of someone else's card. Avoid opening up several credit card accounts at once.

4.   Don't overuse your cards – While you should be using your credit cards, you should not be using your cards to pay for everything. Your credit utilization ratio – the percentage of your available credit that you have used – should be 30% or less.

5.   Ask creditors to increase your credit limit – Increasing your credit limit can also help improve your credit score. However, you should only do this if you trust yourself not to increase your spending.