How to Improve Your Credit Score

Getting into debt doesn't take long - in fact, it can be remarkably simple, as too many consumers can testify. Accumulating debt not only limits your ability to experience financial freedom, it also hurts your credit score and can haunt you for years to come. Many consumers seeking debt reduction find that their credit reports are heavily damaged. But they also should understand that credit scores can be repaired over time. While there is no instantaneous way to fix a poor credit report, there are strategies you can employ that, gradually, will repair your reputation. Here are some ways to do it:

• Know what you owe and have owed: You won't be able to properly manage your financial life until you understand the situation you're in. Get a copy of your credit report and review it carefully. You may be surprised to see what it contains: All your debts going back several years. Look at all of the information and make sure it's accurate - if you see an error, you should report it.
• Pay your bills: It might sound simple, but the easiest way to help your credit report and score is to pay your bills on time each month. All of your creditors - credit card companies, mortgage companies, car loan providers - report your payment habits to the credit reporting agencies. If you miss a payment, your credit report will likely suffer immediately. Conversely, consumers who make their payments on time, every month, for years in a row, are rewarded with higher credit scores. If you are concerned that you can't make a payment, contact your creditor and see if an arrangement can be made to keep your account in good standing.
• Resist the urge to rack up high balances: It sounds counter-intuitive, but you shouldn't spend what the banks permit. In fact, you should resist it as much as possible. You will receive a higher credit score if you keep your balances low on revolving accounts such as credit cards (mortgages aren't related to this issue). As a rule of thumb, carry no more than 30 percent of your available credit; this means that if you have a credit card with a $10,000 balance, you shouldn't owe more than $3,000 of "old debt" on it from month to month.
• Keep your accounts open for several years: Instead of opening a credit card and closing it a year later, only open credit card accounts that you intend to keep for several years. The credit bureaus reward consumers who are boring, those people who rarely open new accounts and keep their existing accounts in good standing for several years. You will be penalized for opening and closing accounts haphazardly.
• Don't be afraid to borrow: As far as the credit bureaus are concerned, debt can be good. In fact, there are good types of debt. If you have a credit history that includes more than credit cards, you will be rewarded. Consumers who have mortgages, car loans, student loans and other types of debt show that they can effectively manage many different types of debt. If all you have is credit cards, it shows that you spend - but might be a risky borrower for a big-time account such as a home loan.