Learn how to clean up your credit report, increase your credit score, and best of all, save money. The higher your credit score, the lower the interest rates you can score on mortgages, car loans and credit cards.

  Credit scoring was once a secret process. However newly available knowledge on credit scoring have made it easier than ever before to improve your credit score.

  Credit scores are three-digit numbers increasingly used by lenders when evaluating your creditworthiness. Insurers, employers and landlords also use the scores in evaluating the applications they get. Scores range from 300 to 850. Only about 11% of the surveyed population ranks above 800; 29% ranks between 750 and 799. Any credit score over 700 is considered excellent.

  We wrote this article to help people who want to improve a credit score. All the steps to improve credit are relatively straightforward. First things first: Get a free copy of your credit report from one of the three major credit bureaus. Review your credit report to see if that are any mistakes. If there are mistakes on your credit report, ask the bureau to remove incorrect information. Once the mistakes have been corrected, you should see a boost in your credit rating and credit score. Once that's accomplished, you can start to work on other ways to improve your credit score.

The basic five steps to credit repair and improving your credit score:

1. Pay bills on time.

    Payment history is the single most important factor in determining your credit score. It accounts for about 35% of the total. Recent payment history carries more weight than what happened five or ten years ago, so getting in the habit of making payments on time. This is an quick and powerful way to rebuild or boost your credit rating.

    Similarly, delinquent payments can hurt your credit score. Missing just one payment can knock 50 to 100 points off a good score. Ouch. For example: if you were to skip payments for a single month on all your bills, it could lower your score from a respectable 707 to the dismal range of 562 to 632, according to the credit score estimator at Bankrate.com. Paying on time save you money in the short term - because you avoid late fees, penalties and interest charges -- and in the long run -- because you can get a better interest rate and save money when borrowing and buying big ticket tams.

    Tip: If you bank offers automatic bill pay it is a good way to stay current with bills. Mortgage lenders, utilities and phone service providers can use an auto bill pay service to deduct the billed amount directly from your checking account each month. You also won't forget or miss any bills. Automatic bill pay also save you the hassle of writing a bunch of checks every month.

2. Pay down debt & consider charging less

Lenders do not like it when the debt reported for a credit card is close to the total credit limit (maximum line of credit for the card). Pay off debt to get your balance away from the maximum and the agencies will translate that added breathing room into a better credit score.

Special note: credit scores do not distinguish between people who carry a balance on their cards and people who don't That said, charging less can also improve your credit score -- whether or not you pay off your credit cards each month.

Credit-card issuers look at your account roughly once a month and report the outstanding balance on that day to the credit bureaus. Their report does not reflect whether you have paid off that balance a few days later or whether you carry it from month to month.

3. Don't close old, paid-off accounts

    We used to tell people to close accounts they weren't using. Now here's the word from direct from Craig Watts, an executive at Fair Isaac & Co., one of the leading credit scorers: Closing accounts can never help your score, and often it can hurt.

    So don't shut down old credit accounts because it can lower the total credit available to you and makes any balances you have loom larger in credit score calculations. Also, if when you close your oldest accounts, it can actually shorten the length of your reported credit history and might make you seem less credit-worthy. Leave all your old accounts open, especially if you're about to apply for new credit.

    Another Tip: Only apply for the credit you really need. Each time you sign up or apply for a new credit card or credit account it can put a small ding on your credit score. It also a new opportunity for credit thieves and identity theft. The next time a department store clerk offers you a 10% discount for signing up for a new card, think about whether it is really necessary and worth it.

4. Don't be afraid of credit counseling

If you're overloaded with high-interest debt and are in danger of falling behind on your payments -- or you already have -- consider working with a Credit Counseling Company to set up a debt repayment plan. These services may be able to negotiate lower interest rates and help you pay off your bills within a few years.

Contrary to what you might have heard, credit counseling probably won't hurt your credit score. It used to, but about three years ago Fair Isaac discovered that people in debt-repayment plans were no more likely to default or go bankrupt than other consumers.

Today the FICO score ignores any and all references in a credit report to credit counseling or debt management programs, Watts said.

Those references to credit counseling, by the way, are typically removed from a credit report after a consumer has successfully completed a repayment plan. That means there's no lasting reminder on your credit history.

5. Avoid bankruptcy

Bankruptcy is considered by credit bureaus to be the worst thing possible, period -- worse than delinquencies, loans, or collections. It will delivery a massive and long lasting blow to your credit score and credit rating.

Bankruptcies can

often deduct 200 points or more off the score of someone with otherwise good credit. Furthermore, recovering a bankruptcy can be tough. Once a score is pushed below 620, which bankruptcy inevitably does, you will have trouble getting credit and the credit you can get is much more expensive. Creditor will think you are high risk and the only lenders and credit card companies that will help you will want a lot of money in order (in the form of higher interest rates, points on loans, etc) if they are going to take on that added risk.

High-interest lenders love recent bankruptcies, because they know consumers aren't allowed to file again for another six years -- plenty of time to charge you a lot of high-rate payments.

Meanwhile, more mainstream (aka conforming or standard) lenders generally will reject consumers with a bankruptcy on their record -- and bankruptcies are reported for up to 10 years.

Click here if you want to avoid bankruptcy

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