10 Ways to Improve Your Credit Score

The information on your credit report directly impacts your credit score. In fact, it's the only thing that impacts your score. Your credit score in turn determines your ability to obtain credit and potentially be approved for loans. Having a poor credit score will either keep you from obtaining credit altogether or place you in a high-risk category, which means that if you're approved for credit or loans, the interest rates you'll be offered will be significantly higher than someone with excellent credit. Over the life of a mortgage, home equity loan, car loan, or student loan, for example, this can cost you tens of thousands of dollars in interest fees.

For example, if you apply for a $250,000, 30-year, fixed-rate mortgage and your credit score is between 760 and 800 (which is excellent), you could qualify for a rate of 5.9%. This would make your monthly payment $1,482.84. Someone with a credit score of between 660 and 679 might qualify for an interest rate of 6.51% for that same loan. Thus, their monthly payment would be $1,581.81. Someone with a credit score of 620 to 639 might qualify for an interest rate of 7.49%. This would make their monthly payment $1,746.32.

In this example, the person with the credit score between 660 and 679 would pay $1,187.84 per year extra in interest compared to the person with the excellent credit score of between 760 and 800. Over the 30-year term of the loan, that's an extra $35,629.20 in interest fees alone. Meanwhile, the person with the credit score between 620 and 639 would pay $3,161.76 per year extra in interest compared to the person with excellent credit score of 760 and 800. This means that over the term of the loan, the person with the lower credit score would pay $94,852.80 extra in interest compared to someone with what would be considered excellent credit.

If you currently have an above average or excellent credit score, it's important to maintain it. Far too many people do stupid things, like making mortgage payments late or skipping credit card payments, and the negative impact on their credit scores is disastrous. Just one late mortgage payment that gets listed on your credit report could cause you to be rejected or be offered a significantly higher interest rate (with extra fees attached to the loan) if you attempt to refinance your mortgage, need to apply for a new mortgage as a result of a move, or apply for a home equity (or home improvement) loan or second mortgage.

If your credit score is already below average as a result of poor decisions and irresponsible financial actions in your past, it's important to immediately begin rectifying the situation by taking steps to begin rebuilding your credit. This process can take months or even years of diligence and responsible financial planning.

For now, let's focus on ten strategies and tips for improving the information on your credit report, which will lead to a boost in your credit score. Unfortunately, successfully completing just one or two of these tasks probably won't result in a fast and dramatic jump in your credit score. However, utilizing most or all of these strategies simultaneously over time will definitely give your credit score upward momentum, the results of which you should start seeing within six to 12 months (possibly sooner), depending on your unique situation.

When it comes to repairing or rebuilding your credit, this is definitely something you can do yourself. There are, however, legitimate credit counselors, financial planners, and accountants who can assist you in better managing your finances and in learning to be more responsible when it comes to managing your credit.

Strategy 1: Pay Your Bills on Time. Although this strategy may seem extremely obvious, late payments are the most common piece of negative information that appears on peoples' credit reports and are often responsible for significant drops in credit scores. When it comes to loans and credit cards, it's vital that you always make at least the minimum payments in a timely manner each and every month, with no exceptions.