A credit report is a personalized financial report card that contains detailed financial information dating back 7 years or more. You actually have three credit reports, each assembled by the three major credit reporting bureaus (Experian, Equifax and TransUnion).

If your credit report is filled with missed payments and other negative items, it will make it more difficult to get vehicle loans, non-government education loans, home mortgages and any other kind of loan. The loans will also be more expensive since the interest rate will be higher to offset the increased risk of default.

Please remember, improving your credit score takes time and patience. However, you may be able to effectively raise your score on a monthly basis by following these tips.

Managing Your Credit Score

Check your credit report

If you haven’t checked your report in a while, it’s always important to review it regularly for fraudulent activity that could be affecting your credit score. You can check your report for free once a year at annualcreditreport.com. If you see errors, reach out to the credit bureau reporting the error to resolve the issue.

Check your credit factors

These 5 factors affect your score and are figured based on these percentages:

  • Payment History: 35%

    Always pay your bills on time and contact your creditors for assistance before a payment is missed. These errors affect your score the most.

  • Credit Utilization: 30%

    This is a tricky one and sometimes hard to understand, but try not to use more than 30% of the amount you are loaned on any type of Line of Credit. These types of loans include Credit Cards, HELOCs (Home Equity Line of Credit) and Personal Lines of Credit. Using more than the 30% could negatively affect your score. Example: Credit Card available credit limit = $5,000; a good credit utilization ratio would be to use no more than $1,500.

  • Credit History and Length: 15%

    The longer you have credit, the better. It’s better to have a $0 balance on a credit card than to actually close it completely. Unless, of course, having it open is a temptation to use the card when you don’t really need to.

  • Types of Credit: 10%

    A mixture of credit helps your score and shows financial institutions you are able to handle multiple types of loans. Ex: Credit Cards, Mortgage, Auto Loan, Personal Loan.

  • New Credit: 10%

    Be aware of “hard inquiries” when shopping around for rates on loans. Too many can negatively affect your score. Always ask first if the inquiry will damage your credit score. A preapproval, for instance, usually does not affect your credit score, but always ask.