7 Tips to Increase Credit Score in 12 Months

The following tips are provided by Western Union’s Steve Kramer. Steve has more than 20 years of payment experience, is currently the Vice President of Electronic Payment at Western Union, and offers results-focused, actionable tips that enable consumers to improve their credit scores and get their financial lives back on track.

Here’s what you can do to increase your credit score over the next 12 months, according to Steve Kramer:

1. Think before you buy: If an item is on sale but takes two years with interest to pay it off, it is a 'deal' worth passing on.

2. Do not max out credit cards: Credit scores take into account just how much credit you have available, so it’s important not to max out your credit card balances; make an effort to keep balances low.

3. Pay bills on time: This is crucial to maintaining good credit for the long-term. Take advantage of a same-day payment option to ensure just-in-time payments to billers and creditors.

4. Do not apply for new credit cards: It's tempting to open up a new credit card while out shopping but avoid it. New open credit may decrease your credit score. Also, every credit inquiry from a finance company decreases your score by points.

5. Thaw your frozen cards every spring: Many people put their credit cards in the freezer to keep from using them all the time. Don’t forget about those old credit cards. When you stop using a card, issuers may stop updating the account with credit bureaus, or worse, close down the account altogether. It’s good to use those accounts, at least occasionally, for a small necessary purchase – then they go back in the freezer for another year.

6. Check your credit report: Check your report regularly and take steps, immediately, to dispute discrepancies. Make corrections a top priority. Consumers are entitled to one free report a year, under federal law, at AnnualCreditReport.com. Don't sign up for a credit monitoring service.

7. Stay knowledgeable: knowledge is your credit power. Stay informed about the interest rates on your cards and remember the key components you control that influence your credit score, including – number of open credit accounts, balances on those accounts, timely payment record, how many cards are 'maxed out', whether you rent or own your home, how long you have been using credit.

FlyerTalk Forums

If you’re a fan of credit card travel or dining rewards programs, you’ll want to become a member of the FlyerTalk forums. It’s an interactive community that lets people share information about rewards programs and travel perks they’ve gotten from various rewards cards.

In the forums, you can read from real people how they’ve been able to maximize their points and miles. Some people discuss credit card retention benefits – where they’ve been able to get extra rewards or points by calling a certain phone number or telling a customer service representative they planned to cancel their credit card account.

Unlike the credit card websites and blogs, this forum is made up of real people who use the various credit cards and participate in the rewards programs. The information you gain from these forums should be without bias or sales agenda, which makes it a little more trustworthy than information you find on a credit card company’s website.

You can use the community for free by creating an account. They welcome you to read the posts and get comfortable and then begin asking questions or sharing information as soon as you feel ready. While they can’t guarantee the information found on the site is 100% accurate all the time (after all, people are posting it and there is a potential for error), you can find out about some great deals, contests, and offers for reward program benefits by becoming a member.

Your Credit Score May Be Adjusted Based on What You Buy

It’s been a well known "secret" that credit card companies analyze cardholder spending and how they make their payments as a method of determining risk. They’ve learned that people who buy certain brands are more likely to pay their bills late or not at all; and what sorts of products paid for with credit will pretty much predict the cardholder will always pay their bills on time.

As an extension of this analysis, it’s possible that certain spending will start to affect your credit score. People who use their credit cards with the following industries may be among the first cardholders to experience credit score adjustments due to their spending habits:

• Gambling (casinos and racetracks)

• Pawnshops

• Liquor stores

• Marriage counseling

• Massages

• Spas

• Bail bonds

• Hospitals & Doctors offices

• Court fees

• Escort Services

• Thrift stores or secondhand stores

Based on research of cardholders making purchases with these industries and the probability of these cardholders paying their bills late or not at all – these are a few of the first industries that are considered suspect when a lender is deciding whether or not to extend you credit.

In 2010, the credit card legislation changes will provide regulations for just how far a credit card company can go to learn about you and your purchases. If you want to be sure your credit score isn’t being adjusted based on where you shop - be aware of where you are using your credit cards.

Set Up Automatic Payments on Credit Cards and Avoid Late Fees

Some credit card companies have little tricks to squeeze out late fees from more cardholders.  You remember when you used to have a full 30 days grace period to pay your credit card bill before interest or late fees would be added?  You would get a credit card statement with a good two weeks or more before the payment was due.

These days, many credit card users are lucky to get their credit card statements a week before you need to get the check written and in the mail.  In fact, I have been noticing my own credit card due dates changing, and by the time the statement comes in the mail, I have to write the check the second I open the mail and practically hand it to the mail lady before she drives away if I hope to have a chance of getting the bill back before the due date and avoid my late fee!

Instead of stressing over it, I’ve switched to using online account managers for each of my credit card accounts.  I log in, set up automatic payments and make sure the date is set for two or three days before the bill is due.  The only thing I have to be careful of is if the credit card company due date changes - in which case I have to go in and change the date the payments will come out.

If you’re automatically scheduling your payments for credit cards, it doesn’t matter how long the card companies mail sits in a bin before going out to cardholders.  You can receive your statement after it’s due for all you’ll care - your payment will have been made before it was due therefore avoiding the $39 + late fee.

How to Improve Your Credit Score

If you’ve recently struggled with poor money management or simply haven’t had enough money to make your payments on time,  your credit score has likely taken a hit.  Late payments, non-payment and having high debt utilization all contribute to a lower credit score and once your score drops it becomes difficult, if not impossible, to gain new credit.

The good news is you can start improving your credit score without the use of additional or new credit accounts.  Your priority should be to make at least the minimum payment on all of your accounts before the due date.  Easier said than done, sometimes, but it is the only way to start improving a low credit score.  If necessary, look for ways to increase your income and decrease your living expenses as much as possible while you start repaying your debt.  Everytime you find a way to save money, use the money toward paying off debt.  (Here is a useful article that offers 55 Ways to Save $1 per day to get you started!)

If you have accounts that have gone into collections, make arrangements with the collections departments to make payments on the accounts and get them paid up-to-date, and then pay them off at the agreed upon payment arrangement.

It’s a good idea to take a money management course, to help prevent this situation from happening again in the future.  Your local library may have a free course offering, some community colleges and consumer credit counseling agencies offer free money management courses for consumers.

When your debts are all paid on time, you might consider at that point obtaining a new credit card or credit account that will report payments to all three credit bureaus.  There are options for getting secured credit that will be useful for individuals with poor credit (they use the individual’s own money as collateral to obtain the credit).

Making payments on time, and reducing the amount of debt you have will improve your credit score.

Prevent Credit Fraud With These Tips

With an increasing number of people without jobs and struggling to make ends meet, the rate of credit card fraud is on the rise.  Here are some tips for preventing credit fraud:

• Open your account statements as soon as they arrive and look closely at the transactions. Match all of your receipts against the statement to make sure there are no unauthorized purchases on the account and report any that you don’t recognize immediately.
•  Shred receipts and account statements before discarding because some may contain your credit card number.
• Never give out your credit card number to people calling to ask for it by phone, you don’t know if they are really who they say they are.  If you need to make a payment by phone with a credit card or bank account, call the company yourself so you know you are dealing with the right people.
• Obtain a free credit report from each of the credit bureaus at least once per year to ensure it is accurate.
• Keep a firesafe, locked box to hold personal documents such as social security cards, birth certificates and bank records.
• Report a lost or stolen credit card immediately so that it can be canceled.
• If your expiration date is getting close on debit and credit cards, contact the card issuer if you haven’t received a card replacement - it’s possible it was taken from your mailbox by a thief.
• Don’t use obvious passwords for online banking accounts.
• Don’t leave your receipt at the ATM or gasoline pump.
• Don’t put your credit card payments in your home mailbox to be picked up - take it to the post office instead.
• Look for the “https” before the URL of websites you want to buy from to ensure they are encrypted and secure  before making a purchase online.

How Your Credit Score is Calculated

With our economy on shaky ground, it’s easy to feel like many factors in life are beyond our control. The good news is that you do have some control over the three digits that define your credit-worthiness: your credit score. To make sure you qualify for the credit you need, take a look at your credit score. For prime loans and interest rates, it should be between 720 and 850 - and standards keep getting higher as more bad debt gets written off by card companies.

So how is this score determined? There are a few different methods, but most lenders look at the FICO model. Here’s the breakdown by percentage:

Payment History - 35%

Do you have a history of timely payments, or do you tend to fall behind? Either way, your payment history is recorded in your credit report and reflected in your credit score. To improve your rating, you’ll need to make all payments on time for at least a year.

Outstanding Debt - 30%

This is where the all important debt-to-credit ratio comes in. If you’ve charged up most of your available credit, it tells lenders that you might be a poor credit risk. On the other hand, if you keep your debt below 30% of your total available credit, you’ll improve your credit rating.

Established Credit - 15%

This factor is simply a measure of how long you’ve had credit. Lenders use it to determine how accurately your payment history represents you, since longer histories give them better insight into your credit-worthiness.

New Credit - 10%

This factor can be annoying. When you open a new credit account, your score will temporarily drop. Hard inquiries have the same effect. If you’ve maxed out several lines of credit and then applied for new ones, lenders will question your ability to manage your spending.

Credit Variety - 10%

For the best results, you’ll need to have installment credit (such as student loans and mortgages) as well as revolving credit (like credit cards) on your report.