海角大神

All sorts of things are harder when your credit score is less than awesome.聽You pay higher interest rates on your home, pay higher interest rates聽for your car, pay double the interest on your credit cards, and more for your auto insurance, too. My particular favorite is the utilities deposit, which is basically the power company holding聽your money ransom while they聽bet against you paying your bills on time.

The terrible truth is that people with bad credit are usually also the ones least able to afford all these extra finance charges. Clearly it pays to have聽good credit since the deck is stacked pretty hard against the folks who don't.

Luckily,聽there are some simple things you can do to improve your score. They聽often require budgeting and financial discipline, but the bottom line is that you are not stuck with your number.

Know your number.

Before you start, you need to know what it is you're trying to improve, right? So your first task is to discover and memorize your credit score.

Several credit card providers have free credit trackers. It's not a substitute for a credit report, but if you have a card with one of these providers, it's free聽and a pretty good place to start. American Express, Bank of America, Barclaycard, Capital One, Chase, Citi, Discover, and several others all聽let card holders access their FICO scores free when logged in to their accounts.

Pay your bills on time.

Your payment history聽makes up聽35% of your credit score. It has more influence on your score than anything else you do. The聽prescription聽here is clear:聽Pay your bills on time.

If that's easier said than done, then it's time to start making some phone calls. If you're having trouble paying your bills, call the聽companies you owe and see what can be worked out.聽If it's a medical bill, see if you can negotiate it down. Falling behind on student loans? Ask about an official deferment. Credit cards will sometimes let you pay a reduced amount聽and even forgive a portion of your debt if you can commit to on-time payments or聽a freeze on your line of credit. Most creditors will work with you, and once there's an official plan on the books for you to follow it all gets reported as being paid on-time.

Pay down your debt for a better credit utilization rate.

How much of your credit limit you're using accounts for 30% of your credit score. Conventional wisdom says you should keep it聽under 30%. For聽a super simplified example, let's say you have a $10,000 on your credit cards. You want to keep your balances聽at around $3,000 or less.

That 30% credit utilization number is misleading, though. I've seen it touted as a sort of magic number, which is a gross misinterpretation of the concept. You want to keep it聽below聽30%. I prefer to think of credit utilization like a聽report card:

• 10% (or 90% available credit) =聽A
• 20% (or 80% available credit) =聽B
• 30% (or 70% available credit) =聽C

Basically, 30% is the聽absolute most聽you should carry to get a passing grade and still needs improvement if you expect to make the honor roll next semester. Well, something like that, anyway. Just remember that a utilization聽rate of 0% here isn't the good thing you probably think it is since no credit utilization means no payment history to report. I'll get into why that's a bad thing a bit later.

Think of it this way: your聽payment history and credit utilization are the things that really show how responsible you are as a consumer. You pay your bills on time and you don't max out your cards. It's actually pretty simple, even if it's easier said than done in the real world.

Pay your debt down.聽The obvious tactic to improve your credit utilization is to simply pay聽down your debt. That means throwing as much money as you can spare at your credit card debt.

If you have multiple cards, the most effective way of paying them down is to concentrate on paying off the card with the highest interest rate first while making minimum payments on everything else. This method is pretty well documented, known as the "avalanche method" and works by prioritizing聽the聽debt that's costing you the most money in the long run.

Another method that's a bit slower but often more psychologically fulfilling is the "snowball method" which entails paying off your smallest balances first in order to get some quick wins and build the momentum you'll need to stick to the plan over a longer period of time.

Whichever method you choose,聽paying your debt down to under 30% of available credit as quickly as possible must be a priority.

Negotiate a lower interest rate.聽Seriously,聽just call your credit card issuer and ask if聽they'd be willing to lower your interest rate. You'll especially have a good chance of success here if you've聽got a good history of on time payments. The worst that can happen is that they say no, and if they say yes then you'll be saving some money in the long run - and you'll be able to rearrange your avalanche or snowball lists a little.

Increase your credit limits.聽Call your credit card company and ask for a credit increase. You can often do this without even talking to a human being since some companies offer it as a phone menu option or in your online account.聽This is not for the financially reckless.聽The trick here is that you want to increase your limits and then聽do not use it.聽Scoring a higher credit limit immediately lowers your credit utilization since the debt you carry is then a smaller percentage of your overall credit profile.

Note that the effectiveness of聽increasing your credit limits to聽make your credit utilization look better is controversial even among experts.聽Experian聽says rather bluntly that applying for new credit probably won't improve your score, and that's probably partly true. Credit cards that go unused sometimes don't count towards your overall credit score, so opening a new card just to raise your limits and improve your credit mix probably won't work.聽On the other hand, having more credit available on existing cards and proving you are disciplined enough聽to not use it is likely going to send the聽positive signal you're hoping for.

Don't close any cards, ever.

Depth and breadth are聽two more keys to your FICO聽score.聽The most important card to keep is the one you've had the longest since the age of your open accounts聽has an effect in on your score. Likewise,聽having four聽long-held credit cards is better than having just one since it demonstrates breadth.

Plus, if you聽close a card but still have outstanding debt elsewhere,聽you've just wrecked your credit utilization rate by jacking it up to a larger percentage of your overall credit. Not good.

If you've paid off a card, just put it in a drawer and don't worry about it.

Brad's Deals founder Brad Wilson wrote extensively about聽why he never closes his credit cards聽awhile back and it's definitely worth reading his take on the matter.

Keep your credit active.

One of the purposes of having a credit聽score is to prove you're a responsible user of credit. It seems really counterintuitive, but it's not good enough to simply pay off your credit cards and never use them again. Crazy as it sounds in the world of credit repair, part of proving you're a good credit consumer聽is聽actually using your credit.

Here's a real world example.聽Many years ago, I worked聽as a loan processor for a small bank. A very wealthy customer had paid off all of his debt and watched in horror as his credit score fell. Why would聽someone with plenty of money and zero debt be getting dinged on their credit score?

Well, your credit score does not take your savings or your net worth into account. The formula聽relies on payment histories and credit lines that get reported to the credit bureaus聽and ignores everything else you have and do. Frankly, the credit score formula聽doesn't really know the difference between Mark Zuckerberg聽and a guy who lives in a van down by the river. It's really unforgiving like that. When the credit bureaus can't聽see you making regular on-time payments on something,聽anything, they're聽less certain of your ability to do it. The further away you get from a verifiable payment history, the worse it gets. The data is simply insufficient and the formula just聽does not react well to that kind of ambiguity.

We solved our wealthy customer's problem by聽financing a relatively small purchase he could have easily paid cash for just so he'd have something reporting to the聽credit bureaus.

If you're lucky enough to have paid off all of your credit card debt, GOOD FOR YOU THAT'S COMPLETELY AWESOME, but keep a wary eye on your credit score. If you see it backsliding, you don't need a bank to bail you out. These days, you can hack the system for yourself pretty easily.

You've got Netflix, right? Or some similar low-cost recurring service that happens on the same day every month for exactly the same amount? Move聽that to聽your oldest paid off card, and then schedule聽an automatic聽monthly payment to your credit card to pay it off the day after it hits your account. Problem solved.

Why does it need to be your oldest paid off card? Because unused cards sometimes get dropped from your credit report after a few months of zero activity. It's like they don't exist. You always,聽always聽want your oldest card to exist to keep the length of your credit history as long as possible.

Take a good look at your credit聽report.

Pull a free copy of your credit report from聽AnnualCreditReport.com. This particular site is the one recommended by the聽Federal Trade Commission聽and by all accounts won't sell your info to any third parties, which is something a lot of free credit report sites do in order to stay in business.聽In short, stick to the one we've linked here. Once you have your credit report,聽look it over carefully.

Are there any mistakes?聽聽Credit reporting mistakes are regrettably common. You can dispute errors directly with the credit bureaus reporting them.聽If they can't resolve it, you may need to call the creditor that's reporting the bad info to get it fixed.

Are there any delinquencies?聽Call the creditor reporting it. Ask if they can change or remove it. If the delinquency was definitely your fault, ask what you can do to fix it as quickly as possible.聽Explain that you're cleaning up your credit score. Be open about the steps you're taking to improve your credit. Whatever happens, don't resign yourself to聽letting your credit report be an inaccurate portrayal of your finances.

On small聽delinquencies, like an old medical bill you forgot about, or a final cable bill that was lost in the mail after you moved, it's not going to hurt anything to try disputing it, even if it's true. Many times a creditor won't bother to argue it if the amount is small enough to not be worth their time and effort. But is it worth yours? Absolutely.

Ask your good silent accounts to start reporting.

Think about the bills you pay monthly that aren't reporting to the credit bureaus. This could be your cable bill,聽your phone service, or even a utility. If it聽isn't reporting to the credit bureaus but you've got a perfect payment history with them, it may be worth calling them up to ask if they can start. It may not be possible, but if it is, then you've instantly diversified your credit mix and added a well-aged line with a good payment history. That should聽contribute nicely to a better credit score.

This article first appeared at Brad's Deals.