Guest Post: 5 Tips to Improve a Credit Score

What better time to talk about small business funding and credit than now? With the debt crisis continuing to be a hot-button issue, I decided to welcome outside guest posts that had SOMETHING to do with credit and funding this week. I hope you enjoy this post on ways to improve your credit score - both personally and from a corporate standpoint.

The economic crisis has done damage not only to the housing sector, but also indirectly led to lower credit scores for consumers through mortgage defaults and higher than normal credit card balances. With millions of American struggling to pay their bills due to job losses, a low credit score may not seem as important as a looming mortgage payment. But, neglecting an important aspect of your financial history, like your credit score, may leave you out in the cold once things take a turn for the better. Here are 5 factors that you can work on to improve your score:

Check for Inaccurate Negative Items

A 2004 report by the National Association of State Public Interest Research Groups found that 79% of credit reports contained some kind of inaccurate information. For example, over 50% contained errors in the reports personal information. Including misspelled names, birthdays, or social security numbers. Other mistakes include "closed" credit accounts being listed as open or loans that were paid, still listed as outstanding. Some of this inaccurate data could have a serious impact on your credit history. Fortunately it is very easy to check your credit report at and see if your score is suffering from anything that can be fixed.

If you find a mistake, you can send a dispute letter to the credit bureau that is responsible. Under the Fair Credit Reporting Act, all 3 bureaus have a legal obligation to investigate any inaccurate or incomplete information contained on your report.

Do Not Carry High Credit Card Balances

The balances that you carry on each of your credit accounts will show up on your credit reports. If a lender is considering you for some type of loan or credit, a large open balance will not help. Paying down your debts (especially on credit cards) will have a large impact on your score and your ability to get new credit.

Don't Charge more than 30% of Available credit

For optimal improvement of your credit score, many experts advise to only spend 30% of your available credit. For example if you have a $10,000 credit limit, you should charge no more than $3000 before you pay the balance off each month. This part of your score is referred to as your "credit utilization ratio". This ratio makes up about 30% of your total score. So, if you have a habit of maxing out your credit cards each month, you may want to switch a percentage of those charges to cash.

Do not apply for too much credit at once

A large amount of credit inquiries on your account can cause your score to drop. This makes up about 10% of your score and can signal to companies that you may be desperately seeking new credit due to financial struggle. Applying for many credit cards at one time would negatively affect your score. But, inquiring about your own credit by ordering your credit report will not affect your score, contrary to popular belief.

Do Not Close Old Credit Card Accounts with a Good History

If you have a credit card that does not get much use, but has a good repayment history, closing it may negatively affect your score. This can cause your credit utilization ratio to become unfavorable. The amount of available credit you have includes all credit cards (even ones that you don't use). So, if you close a credit card that has a $5,000 limit and all of your cards together have a $10,000 limit, you just created a problem with your utilization ratio. So it may be important to keep old cards active, even though they are not in use.

Use these 5 tips to better your credit score so you can get lower interest rates, qualify for loans, and access new credit. Establishing a good history can take years, so it is important stay proactive and follow the rules for having a great credit score.