A couple of weeks ago I did a credit report and much to my surprise my score went up. This isn’t a big achievement since the previous year my score took a big hit.  I decided I wanted to do a review of my credit history for the last 3 years and determine what caused my credit score to change and what can I do to repair it. First lets look at what affects your credit score.

Things That Affect Credit Scores:

• Large Amounts Owed – If you have a large amount of outstanding  credit this will affect your score because it increases the risk that you will default on it.
• New Credit - applying for or receiving new credit will lower your score because this may be a sign that something has changed and you are in desperate need of additional credit.
• Payment History – Do you pay your bills on time? Constantly paying late may be a sign that you are falling behind on your commitments and will eventually default on your credit.  This will lower you score because you are a greater risk.
• Type of credit – To many of the same type of credit may have an impact on your credit score. Having too many credit cards (also known as revolving credit) is a problem even if you don’t carry a balance. There is added risk that you will utilize all of this credit at the same time and then default on all of it. Different types of credit (revolving, open,installment) will have a positive impact on your score.
• Length Of Credit History – The length of time your accounts have been open and last activity have an impact on your credit score.

What Can You Do to Fix Your Credit?
This is pretty straight forward solution, just do the opposite of what affects your credit score:

• Start paying off your debt
• Stop applying for new credit or anything that requires a credit check (even opening a brokerage account can cause a credit hit).
• Pay your bills on time. This applies to all bills like cell phones and not just those that are credit related.
• If you have lots of credit cards and store cards then start canceling them. You should be able to function with with no more than 2 cards.
• Try to keep your oldest credit active and cancel the newest ones first.

My Recent Credit Scores

• March 23, 2007 (for 2006 Year) report overview – Score: 766
• April 18th, 2008 (for 2007 Year) report overview – Score: 658
• March 23rd, 2009 (for 2008 Year) report overview – Score: 695

What Caused My Credit Score To Go Down In 2007?

It looks like in 2007 my credit score took a major dip. My fiance and I had purchased a condo. Part of the process was setting up our mortgage and joint accounts which caused 8 hard credit checks. I also applied for a $26,000 line of credit for investments which is maxed. On top of that I applied for a new joint credit card that would be used by both of us.  So from a fico score perspective there was lots of new credit and attempts to get credit and they penalized me for it.

What Caused My Credit Score To Go Up In 2008?

To my surprise my credit score went up in 2008. I had 4 hard credit checks which I guess isn’t as bad as 8. I did extend my line of credit from $26,000 to $40,000. I also bought a mattress on credit (one year interest free). So from the look of it even though I applied for more credit it seems that the fact that I had some of my largest credit commitments for over a year now has helped. I also don’t carry a balance on the joint credit card and have been up to date on all of my bills.

What Will I Do To Improve My Credit Score?

I’ll be paying off my Citi credit in the next few months and shutting it down. I also have no intention of applying for any new credit (except maybe a new credit card to replace an exsisting one).   I will continue to be diligent in paying all of my bills on time. With all this combined I should hopefully see my credit score continue to rise to what it once was.

Final Thoughts

People should review their credit score at least once a year. It takes time to repair and you need to know what caused the problem in the first place.  If you don’t track it you’ll find that you won’t be able to get the credit when you need it.

How often do you review your credit reports?

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