Whip Your Credit Into Shape

Erica Sandberg is a credit expert and columnist for Creditcards.com. She is also the author of "Expecting Money: The Essential Financial Plan for New and Growing Families."

Q: I have been trying to improve my credit for about four years now, but my scores are still in the 600 range. Why are they so low, and what can I do?

A: Keep in mind that the three-digit FICO score is derived from information on your credit reports. If the reports are inaccurate, any score calculated from them will be inaccurate, too.

Federal law gives you the right to inspect your credit reports once a year, free, at the official site:

Carefully read the reports. If you find errors—studies show that most reports have some—follow the credit bureau's procedure for correcting them.

Now, let's look at other ways to spruce up your credit:

Payment history = 35% your score.
A history of late payments or delinquencies could explain why your scores are low. You've done what you can to fix past damage, now let time work its magic. As those accounts age, they'll have less impact. Meanwhile, it's vital that you pay your existing accounts on time. Always.

Amounts owed = 30%.
If you have balances that are high, or nearing your credit limit, that can ding your score. What to do? Concentrate on lowering your debt ratio to about 20% to 30% of your available credit: i.e. a card with a $10,000 limit should have no more than $3,000 on it. No debt is best!

Length of credit history = 15%
A lengthy record of your borrowing and repaying prowess is essential. You can't make the years fly by faster, but if you've opted out of using credit, start charging again (and paying balances on time) to build your credit history. Also, as you pay off balances, keep your oldest accounts open.

Types of credit used= 10%
In general, it's best to have a mix of installment loans, credit cards, charge cards and retail accounts. By using them all responsibly, you prove that you can handle a range of credit tools. (But don't go overboard. Just apply for what you need and will really use.)

New Credit = 10%
It's fine to pursue new credit when you need it, but too many inquiries or new account openings can hurt your score. Keep it to about two per year. Did you complete the paperwork for a lot of new accounts recently? If so, you may have knocked your score down a bit. Slow down and stop applying for a while.

Clean up your credit act now, and you should see results in six short months.

Erica Sandberg is a credit expert and columnist for Creditcards.com. She is also the author of "Expecting Money: The Essential Financial Plan for New and Growing Families."

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