How to Repair Your Credit Score

Just like knowing your Social Security number or your blood pressure, you also should know your credit score. This three-digit number will affect the types of loan programs you receive approval for, the rate at which you repay debts and even the cost of your auto insurance. If you are looking to borrow better with reduced debt, you will need to work on repairing your credit score.

Credit scores range from 300 to 850. The higher your score, the better your credit. As a rule of thumb, consumers with credit scores of 700 or higher are more likely to receive preferable loan programs and lower interest rates on credit cards. If your score is below 650, you will likely be considered "subprime," which means you credit has been tagged as high-risk to banks and lenders. If your score is less than perfect, there are ways to repair it over time. Discipline and smart money management will help you gradually repair your credit. Here are some strategies you can employ today:

Tips for repairing credit scores

• Pay your bills on time: This could be the most important way to improve and repair credit. Thirty-five percent of your credit score is based on your payment history. If you pay your bills on time, pay at least the minimum due and never miss a payment, your score will benefit. Consumers who establish excellent payment histories over several consecutive years find that their scores are significantly better than consumers who miss payments or make late payments. If you encounter a situation in which you can't make a payment, be sure to call your lender immediately. You may be able to make short-term arrangements that will keep your account in good standing. Don't risk your credit by making a late payment.
• Borrow only what you can afford: This includes both loans and credit cards. If you can't afford a purchase, don't make it. Your credit report will keep track of how much you owe in relation to your available credit. If the percentage is more than 30 percent, your score could suffer. If you carry balances on your credit cards, try to never have balances exceeding 30 percent of your available credit.
• Keep your accounts open: Credit scores measure how reliable you are. In general, banks think consumers are reliable when they open accounts and keep them open for several years. They don't rate consumers as reliable when they open and close credit accounts routinely. If you are considering opening an account, think carefully. Do you really need it? Will you keep it for several years? The way you use credit cards will directly impact your credit score.
• Check your credit annually: Make sure you look over your credit report at least once a year. You should do this not only to review your accounts and credit standing, but also to verify that the information on file is accurate. A simple error could hurt your credit, so it's wise to make sure your report is correct.