Your credit score is one of the most important numbers in your life. A good credit score can help you get the best rates on mortgages, auto loans, and other types of credit. If your score is poor, you will find it difficult to qualify for credit and may pay outrageous interest rates on your loans and credit card accounts. If you already have a poor credit score, do not despair. There are several ways to improve your score without resorting to illegal or unethical tactics.

Start Making Payments on Time

It is possible to learn how to fix your bad credit report, but the fix is only temporary if you continue to make late payments or miss payments. The second you decide to repair your credit, you should make every effort to start making your payments on time. On-time payments are one of the most important factors considered when developing a credit score. In fact, 35 percent of a FICO® score is based on your payment history.

Open New Lines of Credit

If your score is high enough to help you qualify for new lines of credit, opening a new account can improve your score because the FICO® scoring model considers credit utilization and your credit mix. Utilization is the amount of credit you are using compared to the amount of credit you have available. If you have a $2,000 balance on a credit card with a $10,000 limit, your utilization is 20 percent. Opening a new credit account increases the amount of credit available to you, which helps reduce your utilization. If you kept the card with the $10,000 limit and opened a new account with a $10,000 limit, your available credit would increase to $20,000. If you kept the same $2,000 balance, your utilization would drop from 20 percent to 10 percent.

If you are not worried about decreasing your credit utilization, try getting a small installment loan from a bank or credit union. It is good to have a mix of different types of credit – such as credit cards, installment loans, and real estate loans – instead of several of the same types of accounts. If you only have credit cards, opening an installment loan account could help you bump up your score. Keep the loan principal in an interest-bearing account so that you can make all of the payments on time.

Request Credit Limit Increases

Requesting a credit limit increase on an account in good standing is another way to increase your credit score. This is because increasing your limit also decreases your credit utilization. If you have a $2,500 balance on a credit card with a $5,000 limit, you are using 50 percent of your available credit. If your credit limit is increased to $10,000, your credit utilization drops to 25 percent.

Apply for New Credit Sparingly

Although a new credit account can help you increase your score, it is not a good idea to apply for multiple accounts at the same time because the number of hard inquiries on your credit report also plays a role in determining your FICO® score. Every time a lender checks your credit for the purpose of making a credit application decision, it shows up on your report as a hard inquiry. Unlike other types of credit information, inquiries typically only stay on your report for one to two years. However, too many inquiries can reduce your score, as they can indicate that you are trying to open multiple credit accounts due to financial difficulty. If you do not need a new car or a home loan within the next few years, avoid applying for multiple credit accounts to keep hard inquiries from hurting your score.

Dispute Inaccuracies on Your Reports

Believe it or not, it is possible for inaccurate information to show up on your credit reports. A creditor reporting a missed payment when you have always paid on time is just one example of an error that could appear. Since these errors can hurt your score, it is important to dispute them with the credit bureaus. The first step to getting rid of inaccurate information is pulling your reports from Equifax, Experian, and TransUnion. If you live in the United States, you are entitled to one free report from each bureau every year. You must visit to request your free reports.

Once you have your reports in hand, highlight any inaccuracies. These are just some of the following inaccuracies to look for on your reports:

  • Accounts marked delinquent when you have always made your payments on time and in full
  • Accounts that are not yours
  • Incorrect account balances and credit limits
  • Accounts that should have already been removed from your report

When you have reviewed the reports, write dispute letters to each credit reporting agency and ask them to investigate the disputed items. Equifax, Experian, and TransUnion all allow you to file disputes online, but you should not use the online tools. Instead, send the dispute letters by certified mail. Using certified mail gives you proof that you mailed the letters and that each credit reporting agency received the letters. Include the last four digits of your Social Security number, your date of birth, and a copy of your driver’s license or non-driver photo identification card with each letter. This will help the credit reporting agencies verify your identity immediately so that there are no delays in processing your disputes.

Reduce Your Total Debt

The amount of debt you have is an important factor when it comes to your FICO® score. Just like opening new credit accounts and requesting credit limit increases will help you reduce your credit utilization, so will paying down the balances on your accounts. If you currently owe $2,000 on an account with a $10,000 limit, paying $1,000 on that account will reduce your credit utilization by 10 percent. If you have to pay down several debts, pay the accounts with the highest interest rates first.

Shop for Loans Carefully

As you just learned, too many hard inquiries on your credit report can hurt your score. If you are shopping for a car loan or home loan, it is important to plan ahead. If you apply for five different car loans over a period of four or five months, each inquiry will be treated as a separate inquiry. If you apply for the same number of loans on the same day or in the same week, the credit scoring companies will treat these inquiries as just one inquiry.

Once you start taking these steps to improving your score, it is important to manage your credit carefully. On-time payments, low balances, and a good mix of credit accounts will help you reach a credit score that will make you proud. Just remember that credit repair is not an overnight process. It may take several months before you see your scores improve.