Improving your credit score starts by taking stock of your entire financial life. Ask yourself first, “What loans or credit cards have the highest monthly interest rates? What percentage of my budget can afford to put towards paying down debt?” It should be your priority to pay down your debt, first, before improving your credit score. Improving your credit score requires more than just paying down old debt. Those individuals interested in loan modification or entering credit card negotiations should know, too, that paying off a collection account won’t remove the stain from a FICO report or other credit reports—it’s there for seven years.
Get current with all your payments and pay on time
If you have missed payments, work to get ahead of them. Once you calculate the lump sum of what you owe every month on all your loans, make it a priority to pay that down before you buy anything outside your basic needs. Creditors are looking for positive patterns from borrowers. Those patterns will improve credit score over time.
Don’t move around debt and keep credit card balances low
Don’t get trapped in this fool’s game: using one credit card to pay off another is a mistake and only gives the cosmetic of improvement. Creditors can see this too. Moreover, having less open credit accounts with the same debt can hurt your score.
High credit card balances negatively affect your credit. Plus, those monthly interest rates pile on new debt faster the higher your balance is.
Don’t open new accounts to create a larger credit pool
Even if you don’t plan on using these new sources of credit, your credit “age” is an average of all your accounts. If you have two five-year-old accounts, and suddenly open a new one, you suddenly become a much ‘younger’ borrower—younger isn’t better as a borrower!