The Top 10 Ways to Improve Your Credit Score

The ripples of a pebble on the water’s surface are evidence of its actions. The ruptured area radiates with proof of the rock’s exploits. Credit works in a similar manner. It radiates as proof of your financial actions entered into for all to see. It leaves a tide of effects on the surface of your financial future that can either help or hinder the home buying process. If your ripples mark the struggle to maintain a positive credit score, there are 10 ways to smooth out your credit in a relatively short amount of time.

1. Know your score

Check your credit reports from all three credit reporting agencies and make sure there are no inaccuracies or out-dated information listed. Ensure that all closed accounts are listed as such and the credit limit on your cards is reported correctly. Higher spending limits mean a higher rating for you.

2. Pay your bills on time

As obvious as this seems, late payments are the most common piece of negative information on a credit report. Make sure to pay at least the minimum payment each month to your mortgage, car loan or credit card account. Many card companies even offer automatic email reminders.

3. Keep credit card balances down

Though a high spending limit looks good on your credit profile, actually using more than 35% of it does not. Regardless of how high you can go and how devoutly you pay, try to keep those balances low.

4. Don't close unused accounts

Credit history counts considerably towards your score and healthy, long-standing accounts are important. If you have credit cards you don't use, put them out of reach and reap the benefits of a long-term relationship.

However, it is a good idea to use those cards every six months for a small purchase ($5 is plenty), because the credit card grantor will often close your account if you have lengthy periods of inactivity. Mark a “Use all my credit cards to buy a candy bar” day on your calendar, and then be sure to pay the balance off right away. This will keep your accounts current and raise your credit score.

5. Only apply for needed credit

Resist the temptation of the 20% discount offer if you open a department store credit card. Unless it's a big-ticket item that you'll be paying over time, using existing cards for your purchases is a better idea. Remember that every time you apply for credit of any kind, an inquiry goes to one of the credit-reporting agencies and can stay on your report for as long as two years. Multiple inquiries in a short period can seriously reduce your score.

6. Shop for the best rate

Though you need good credit habits regardless of what percentage interest you're paying for loans and cards, be a smart shopper and always look for the best rate when opening a new account. Before using the appliance store to finance your refrigerator, see if a regular card with a lower rate could do the trick instead. It will make timely payments that much easier.

7. Create separate accounts if you divorce

Don't let the joint accounts you opened with an ex-spouse impact your current credit score. Even once a divorce is legal, the parties involved must close the accounts or change the name of the party responsible for them.

8. Avoid bankruptcy if possible

Regardless of the seriousness of a financial crisis, the decision to file for bankruptcy should not be taken lightly. Rather than supplying a quick fix, the impact to your credit score is long term, for up to 10 years. Many lenders automatically reject potential borrowers who have bankruptcies on their credit reports.

9. Don't consolidate credit cards onto one card

Unless you can save dramatically, putting all your credit card debt onto one card that maxes out the limit can hurt your score. Spreading the debt between several low-rate cards is a better solution.

10. Negotiate with your creditors

Rather than skipping payments or defaulting on a loan, communicate with your creditors to develop a payment plan or find a restructuring option that is within your financial means. Forcing a creditor to turn your account over to a debt-collection agency will further reduce your credit score.

Perhaps more than any other measure in our lives, our credit histories impact what we can do and where we can live, because they determine largely what we can spend. Don't let your credit profile be a mystery to you, since it will be well-known to those you seek to borrow from. Clean it up and keep it that way! Don't let the less-than-perfect practices of your credit past control your credit future.