After filing for bankruptcy several years ago, I had to figure out what I needed to do to improve my credit score, and I’ve been working diligently toward that end ever since. Now, even though it’s still not perfect, my credit score has been improving ever since because I took the steps to learn what I needed to do to improve it. In this article, I provide some of the steps I took and some of what I learned in my research to improve my credit score.

Your credit score determines the amount of interest you’ll pay on credit cards or other loans. This includes loans like auto financing and mortgages. There are also types of non-interest costs that your credit score can have on your lifetime, like the cost of insurance; your ability to rent an apartment or secure utilities without having a co-signer; and in some cases it can affect whether you will be selected for a job. Raising your score by just a few points will make a big difference to your life overall, but mostly to the interest rate you’ll pay on a purchase, especially important for those large purchases. A high credit score generally equates to getting the best loan rates and terms for auto financing, mortgages, credit cards,
etc You get the idea. However, a low credit score can have a negative effect on even some of life’s most basic necessities.

While the way your credit score is calculated is not public knowledge, as the exact formula has been kept secret by Fair Isaac Corporation, there are some basic approximations to consider.

Here’s the basic breakdown:

1 – Pay your bills on time – about 35 percent of a credit score

2 – How much do you owe – about 30 percent of your credit score

3 – Credit history – about 15 percent of your credit score

4 – New credit – about 10 percent of your credit score

5 – Types of credit – about 10 percent of your credit score

Here is some information that can help you improve your credit score and, in some cases, help you identify whether or not you have been the target of identity theft:

Step One: Know what’s on your credit report

Your credit report is an important life document. When I first received mine, I was amazed at all the information it contained about my life and myself. My entire life from the time I turned eighteen to the present was contained in the report. Every place I lived, worked, and every loan I got was included in the report. It goes without saying that if someone else had access to my credit report, they would certainly have valuable information.

Since your credit score is based on your credit report,
You should start by learning what’s in your credit report and whether it’s accurate.
This is an easy step and you can even get your credit report for free. Under a new federal law, you have the right to receive a free copy of your credit report once every 12 months from
each of the three national consumer information agencies; Experian, Equifax and Trans Union. This can be done online or over the phone. I suggest spacing each credit report intermittently throughout the year so that you can monitor any changes. Ordering your own credit report does not negatively affect your credit score, as long as you order through these companies rather than through a debt management counseling agency.

Step Two: Is Your Credit Report Accurate?

What more is there to say?

Is your name correct, your social security number, are there accounts you didn’t open, something negative that needs to be addressed, is there something that doesn’t fit? You need to make sure everything on your credit report is correct and address any issues that could negatively affect your credit score.

Step Three: Pay your bills on time.

This is the no-brainer. We all know it looks bad if we pay our bills late and getting those late fees is not something I like waking up to. More than 30 percent of your credit score reflects your payment history. The general rule of thumb is that it’s never too late to start paying your bills on time, and doing so will definitely improve your credit score. In addition to forgetfulness, late payments are generally a sign of financial difficulty. To lenders, this may indicate a possibility that you may default on your loans.

Step Four: Be Smart With Your Credit Cards

There are several ways to be smart with your credit cards.

1. Don’t apply for unnecessary credit.

New credit is about 10 percent of your credit score and having a
Too much new credit can negatively affect your credit score for a number of reasons. First, you can reduce the length of your history by lowering the average age of your account. If you go on a spree and ask for all those ‘get 10% off when you open a new account’
deals at Christmas or any other time, you’re in for a big surprise when you check your credit score. Second, if you already have a lot of credit and your credit utilization is high, the lender may indicate a financial problem.

2. Keep balances low

After filing for bankruptcy about 5 years ago, I made the decision based on the advice of my attorney that I needed to establish my credit history electronically. What he told me was that I needed to sign up for a couple of credit cards, spend a little each month to keep the balances low, but be able to pay them off each month. In this way, I have been able to maintain a good ‘utilization rate’ without going overboard.

The ‘utilization ratio’ is the amount of available credit you have in relation to the amount you owe in credit debt. This represents 30 percent of your credit score, so it’s important to keep your utilization ratio low. It’s not just about paying off your credit cards each month; it’s about consistency and
debt management. You also want to keep your accounts active so that businesses continue to report.

3. Be conservative, but judicious with your credit

There are two things in balance here. For one, lenders want to see a well-managed credit history. Second, there has been an increase in identity theft. Identity theft demands the need
to be more aware of the credit cards you have. A friend of mine was recently the subject of identity theft and unfortunately he was so spread out with loans that he had no idea what was his and what was not. The lesson here, the less you have,
less you have to manage. It really makes checking your credit report a lot easier too.

However, that doesn’t necessarily mean you want to start closing accounts because you want to minimize the risk of identity theft. The length of your credit history is about 15 percent of your credit score, and everything helps. You want to make sure that the credit cards you have are well established, which means there is a long credit history with that lender. Another thing to consider is that closing accounts changes your credit utilization ratio.