The Money Mastermind: How to Increase Your Credit Score in Less Than a Year

Step 1: Pay your bills on time

Your payment history accounts for approximately 35% of your credit score more than any other factor. If you have a history of paying bills late, you need to start paying them on time. If you've missed payments, get current and stay current. Each on-time payment updates positive information to your credit report. The longer your history of paying bills on time, the higher that portion of your credit score will be.

Step 2: Review your credit report

* Errors happen, so review your report closely for:

* Accounts that aren't yours

* Accounts with the wrong account date or credit limit listed

* Names and Social Security numbers that aren't yours

* Addresses where you've never lived

* Negative information, like late payments, older than seven years. (Late payments can only legally stay on your credit report for seven years.)

Under the Fair Credit Reporting Act, the three national bureaus - Equifax, Experian, and TransUnion - and your creditors are responsible for correcting errors on your report. The Federal Trade Commission (FTC) website has detailed steps for correcting errors, as well as a sample dispute letter. If you find accounts that aren't yours and suspect you've been the victim of identity theft, you'll need to place a fraud alert on your credit report, close those accounts and file a police report and a complaint with the FTC.

Step 3: Pay down your card balances

The amount of debt you have is heavily scrutinized for your score. Your total reported debt owed is taken into account, as well as the number of accounts with outstanding balances and how much available credit has been used. The total reported debt is compared to the total credit available to determine your debt-to-credit ratio. Your credit score can suffer if those numbers are too close together. Your best plan for lowering your debt is to make a plan to pay it off. While it may seem like a wise move, don't consolidate debt onto one lower interest card. Credit inquiries and opening new credit can lower your credit score, at least in the short term. Closing old cards with high credit limits can also throw off your debt-to-credit ratio. If a new credit offer is too good to pass up, keep your total amount of credit available high by not closing any old credit cards.

Step 4: Use Credit

You must use credit regularly for creditors to update your credit report with current, accurate information. While paying with cash or a debit card may make it easier to keep to a budget, a cash-only lifestyle does very little to improve your credit score. The easiest way to use credit is with a credit card, especially if you're trying to improve your score to qualify for an installment loan. If you have an old credit card, start using it responsibly again. A long credit history is a positive determining factory for your credit score, so making an inactive account active again may be advantageous. Although you need to make a point to use credit regularly, only charge as much as you can pay off. Keep your credit balances low so as not to damage your debt-to-credit ratio.

Step 5: Monitor your report

Keeping a watchful eye on your credit report will let you see if your hard work is paying off. Credit monitoring allows you to keep tabs on account activity. You'll also be immediately tipped off about any fraudulent activity. The credit bureaus and FICO offer credit monitoring services, which typically cost about $15 a month to monitor all three of your credit reports and scores. You can also use Credit Karma or other free sites alike.

Step 6: When You're shopping for a loan, do it quickly.

This is a hack due to the lag time between the lenders and the 3 bureaus.

When you apply for a loan, the lender will "run your credit" ---that is, send an inquiry to one of the credit rating agencies to find out how creditworthy you are. Too many such inquiries can hurt your FICO score since that could indicate you're trying to borrow money from many different sources. Of course, you can generate a lot of inquiries doing something perfectly reasonable--- like shopping for the best mortgage or auto loan by applying to a number of different lenders. The FICO scoring system is designed to allow for this by considering the length of time over which a series of inquiries are made. Try to do all your loan shopping within 30 days, so the inquiries get batched together and its obvious to FICO that you are loan shopping.

I am a professional credit consultant that enjoys helping people reach their long-term credit goals by educating consumers on how they can improve their credit scores. A low credit score can cost a consumer thousands of dollars a year in mortgage/personal loan interest fees.