In our society, it is an unfortunate fact that when you have bad credit the things that should be simple can make your life very difficult. Bad credit can also make things cost more than they should. From renting an apartment to buying a car, if you have bad credit you may find that either you cannot obtain an approval or you have to pay a higher cost than people who have good credit.
 
The good news is that it is possible to improve your credit score. Although it doesn’t happen overnight, and it requires patience and persistence, you can follow these simple steps to improve your credit score to get your life back on track.
 
What is a Credit Score?
 
Also known as a FICO score, a credit score is basically a number between 300 and 850 which grades a person’s credit history. A number is given to anyone with a social security number who has ever had credit in any form, such as a credit cards or loans.
 
The credit score is lower for people with bad credit and higher for those who pay on-time posses good credit. The credit score number informs lenders and creditors if you are worthy of giving credit to, and if so, what your interest rate should be. Of course, higher interest rates are paid by those with lower credit ratings.
 
Creditors use your credit score to determine your ability to pay your bills or your loan. Every time you make a payment (or default on a payment), it is reported to the credit bureaus. There are three credit bureaus which are keeping track of your credit scores: Experian, TransUnion, and Equifax. 
 
5 Tips to Improve Your FICO Score
 
1. Pay Bills on Time
 
Although this step may appear easy to most people, it is often difficult to pay bills on time if you just do not have the money when the bills are due. You must rearrange your budget to the best of your ability to ensure that your bills are paid on time. Over time, this step alone will go a long way in improving your credit rating as other creditors will see how hard you have worked to pay others on time. These efforts will translate into lower interest rates, potentially saving you thousands of dollars. 
 
2. Pay off Your Debt
 
This can be accomplished by adding a few extra dollars to each of your monthly. Just paying the minimum payment will get you nowhere fast – you must pay extra to pay down and pay off your balances. When you see your balances going down, do not be tempted to acquire new debt right away. In fact, you will find that as your balances drop, your credit score will go up.
 
3. Keep Your Balances Low
 
Once your balances are low, keep them that way! Do not make a purchase on your credit cards unless you know for sure that you will be able to pay it off at the end of your billing cycle. When you need to make an important purchase in the future, such as a house or a new car, these lenders will need to see that you have as much available credit as possible.
 
4. Do Not Close Old Accounts
 
Financial experts recommend keeping old accounts open even after they have been paid off. These accounts will show that you have available credit, which is important when creditors determine your utilization ratio. ‘Utilization ratio’ is a term used to describe the total amount of debt you have compared to the total amount of credit you have available. More available credit leads to a higher credit rating.
 
5. Work with Lenders When Trouble Arises
 
Instead of defaulting on your payments and allowing your credit rating to drop, contact your lenders if you are having a problem making your payments. In many cases they will work with you to arrange an alternate payment plan. This shows a good faith effort on your part and will encourage your lender to help you work through your financial situation, even if only as a short sale-term solution.