How do I improve my credit score?

First, review how lenders look at your credit report.

How to Think Like a Lender
Lenders want to find out:	Because:	Rule of Thumb:
If you pay your bills on time.	If your report shows you have a habit of paying your bills on time, it is likely you will pay the lender on time, too.	Always pay all of your bills on time.
How much you owe, or how much of your credit you use.	If you max out on your credit limit, or come close to it, it might be likely you’ll default on a new loan.	Don’t use more than 30% of your credit limit.
How long you’ve had credit, or how long your credit accounts have been open.	The longer you’ve had credit, lenders believe, the better.	Don't close unused credit card accounts.
If you frequently apply for credit.	If you frequently ask for credit, you might be in credit trouble.	Wait six months between applying for more credit.
The type of credit you use.	Lenders look at your credit more closely to approve you for an installment loan, but less to approve you for a credit card.	Having a history of paying on an installment or mortgage loan is good for your credit, but not necessary to get credit or improve your credit.
If you owe back taxes (have tax liens), foreclosures, bankruptcies, wage garnishments, lawsuits, or judgments.	This will affect whether you receive credit at all, and if so, at what interest rate.	Pay all of your bills on time, every month.

Second, review what financial behaviors affect your score the most.

How Financial Behaviors Affect Your Credit Score
Financial Behavior	How Heavily it Affects Your Score	Resist the urge to pay the minimum amount due on all your credit accounts. The money you save in interest charges can be money you put toward your financial goals or an emergency fund. Before you open a new credit account, make sure the lender for that account reports to at least one of the credit agencies. If you are getting into the swing of managing your credit well, you want to make sure that all of your hard work to improve your score gets reported!
How you pay your bills: • On time: helps your score • Late: damages your score	35%
How much money you’ve borrowed (your credit balances): • Low credit card and loan balances: helps your score • High balances: damages your score	30%
How long have you been using credit: • Many years: helps your score • Just a couple: damages your score	15%
How often you request credit: • Once or twice a year: helps your score • Many times a year: damages your score	10%
The type of credit you use: • A combination of loans and credit cards: helps your score • Just credit cards: this really doesn’t affect your score, but using a combination of credit helps your score	10%

Lenders don’t report a late payment to the credit agencies until it is over 30 days late. But if you are one day late, several things can happen: You may get hit with a late fee of up to $40, and your APR (annual percentage rate paid on balances) will go up. And not just for the credit card account you’re late on. With Universal Default, the interest rate could go up on all of your credit accounts!

Getting the big picture? Good. With all that in mind, here are 16 things you can do to improve your credit score.

Sixteen Things You Can Do to Improve Your Credit Score
1.	Pay all of your bills on time, every month—it is the fastest way to add points to your credit score.
2.	The three credit reporting agencies: • Experian • TransUnion • Equifax Review all three credit reports at least once per year to make sure your credit information is correct. Dispute incorrect information. You can quickly add points to your credit score by correcting wrong information. Keep a journal during credit report disputes. Write down important information from phone conversations with lenders. • If you need to send a credit reporting agency or a lender proof to support your dispute, send copies (not originals!) of receipts, letters, monthly statements, etc. • Don’t ask for new credit during a dispute.
3.	Use only 30 percent of your available credit limit. For a $5,000 credit limit, that means limiting your charges to $1,500. If you have used over 30 percent of your credit limit on any of your credit cards, start paying off those balances.
4.	Pay down your balances. The wider the gap between your total credit limit and your total credit balance, the better your score. If you can’t pay down balances on all your credit accounts, you can take two approaches: • Pay down the balance that is closest to its credit limit to widen the gap between your total credit limit and your total credit balance. When you get your balance down to at least 30percent of the credit limit, move on to the next card. • Pay down the balance that is the lowest, then move on to the next lowest balance. Paying off balances may motivate you to stick with your credit improvement plan.
5.	Take extreme caution when transferring credit balances to low-interest rate credit cards. Your best bet is to stick with paying down your balances rather than moving them around. • Opening new credit accounts can damage your score, especially if you opened one within six months. Remember, stay on top of "hard" inquires. Hard Inquiries A hard inquiry occurs when a potential lender reviews your credit for the purpose of giving you credit. Too many hard inquiries over a short period of time (say, six months) may damage your credit score. • If you transfer a balance to a card with a lower credit limit, the gap between the credit limit and credit balance will become narrow. Remember, you want to widen that gap to improve your score. • Review “What to Watch Out for When you Transfer Credit Card Balances.”
6.	Even if you pay off your purchases every month, be careful about how much you charge. Remember that gap we’ve been talking about? The credit reporting agencies update your credit report every month. If they update your report between the time you make a purchase and pay it off, that balance will get reported. And if the amount of the purchase exceeds 30 percent of your credit limit, it could lower your score.
7.	Apply only for the credit you need. Reflect on your financial goals and the reasons to use credit.
8.	Stay on top of “hard” credit inquiries. It may be possible at times to provide someone with a copy of your credit report to avoid a hard inquiry.
9.	Beware of purchase discounts you get by opening a credit card at the point of purchase. If you’ve recently opened a credit account, that new account could damage your credit. Again, stay on top of hard inquiries.
10.	Wait six months after you’ve applied for credit before you apply for it again.
11.	Be careful about closing credit card accounts for two reasons: • When you close an account, you “close out” credit and lower your total available credit. It’s the “gap” thing again. Keep widening the gap between your total credit balances and total available credit. • The longer you have credit, the better. That means the longer you have an account open, the better.
12.	If you’re planning on buying a car or going back to school, you’ll need to shop around for interest rates. Do so in a short period of time, say over a month. Credit agencies won’t decrease your score for multiple credit applications in a short period for these types of purchases. This applies to homes as well, but Habitat for Humanity provides interest-free loans, so you won’t need to shop around for mortgage rates.
13.	You need to use your credit in order to improve it. Even if you don’t need credit, make small purchases with your credit card for items in your spending plan, then pay them off in full every month.
14.	Stick to your spending plan to keep you from overspending. If you overspend, you may be forced to use your credit card to pay your bills. If that happens, you increase your credit balance and narrow the gap between your credit balance and available credit.
15.	Build an emergency fund. If an unexpected expense comes up, such as a car repair or medical expense, you can pay for it with cash instead of charging it and increasing your credit balance.
16.	If you are in a credit crisis, work with a credit counselor to pay down your debt. A credit counselor can help lower interest charges and credit card fees. That will help lower your overall credit balance and could improve your credit score.