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Five simple steps for improving your credit

Step #1 - Correct Obvious Mistakes
Look for mistakes in your personal information on your credit reports. Make sure that your address is correct (both past and present) as well as the spelling of your name. But more importantly make sure that your payment history is correct. If there is a payment marked as late that was definitely paid on time look into getting this corrected immediately. It can take up to 30 days to get corrections made to our credit score and credit reports, if not longer. Check your credit at least once per year and several months before applying for any major lines of credit such as a car or home loan. This will give you time to get those mistakes corrected before they can negatively impact what type of credit you are applying for.

Step #2 - Never Pay Your Bills Late
This is especially true when you are applying to credit in the coming months. A missed or late payment in recent months looks much worse to lenders than an isolated incident several years ago.

Step #3 - Pay Down Your Credit Card Balances
A big factor in your FICO score is the amount you owe on your credit cards relative to your total credit limit on your credit cards. Some experts suggest keeping your credit card balances at or below 25 percent of the total limit.

Step #4 - Don't Just Move Your Debt Around, Pay It Off
Since the ratio of your credit card balance to your credit limit is key, closing out an account and transferring the balance simply means you increase that ratio, which is likely to lower your score. In other words, say you owe a total of $2,000 on four credit cards, each of which has a $2,000 limit. Your total credit limit is $8,000, of which your total balance ($2,000) accounts for 25 percent. If you transfer all your balances to two cards and cancel the other two, your total credit limit is reduced to $4,000, and your $2,000 balance now accounts for 50 percent of that limit.

Step #5 - Near Loan Time, Don't Do Anything
Opening and closing credit card accounts near the time of the loan can wreak havoc on your ratios within your credit scores and likely raise some questions (as mentioned in Step #4). Another point to consider, if you have a short credit history, or very few accounts, opening a new account will lower your score because you don't have a proven track record and a new account will lower the average age of your accounts, another factor in your FICO credit score.