For example, if you have a credit card that has a $20,000 credit limit on it, a $2,000 balance is better than a $15,000 one. In this case, the lower balance is given a higher rating for credit scoring.

The amount owed on different types of accounts can also make a difference. For example, it is better to owe $50,000 on a mortgage than to owe $50,000 on a credit card account.

Hot Tip: Paying down these loans can make a big difference in your credit score. For example, if you borrowed $20,000 to purchase a car and have paid off $10,000 of that, you are viewed as being able to manage and repay your debt.

Making sure your credit report is both accurate and up to date is one of the best steps that you can take in boosting your credit score. According to the Fair Isaac Corporation (FICO), the company that provides the credit score model to various financial institutions, the median credit score in the U.S. is 711.

There are several ways to obtain your credit report, including online services that also offer credit monitoring and identity theft protection. It is essential to be careful when seeking a copy of your credit report, though, as you can get lured into paying for services that you don’t want or need.

Hot Tip: Every year, consumers are entitled to at least 1 free copy of their credit report from each of the 3 major credit bureaus. You can obtain your reports by going to annualcreditreport and read more about how to get a free credit report [Experian, Equifax, TransUnion].

When you receive your credit report, you should read it over carefully to ensure that all of the details are correct. If you find any inaccurate information, report it to the credit bureau immediately to have it removed from your credit report. Otherwise, it may continue to harm your credit score, along with your chances of obtaining future credit.

You could raise your credit score, in some cases significantly, by removing any incorrect information. Image Credit: wutzkohphoto via Shutterstock

Tip #5: Reduce Your Debt-to-Income Ratio

Your debt-to-income ratio, or DTI, is a personal finance measure that compares your monthly debt payment to your overall income. It is one way that lenders measure your ability to manage monthly income and repay debts. DTI is determined by dividing your total recurring monthly debt (such as a mortgage, auto loan, and credit cards) by monthly income.?

If you have a low debt-to-income ratio, lenders and creditors see that you have a good balance between the amount of debt that you carry and the amount of income that you earn.

On the other hand, a higher debt-to-income ratio can be a sign that you have more debt than you can support with your income. It makes you a higher lending risk.

Tip #6: Have a Good Mix of Debt

Having a balanced mix of debt can be better for your credit score than having all of your debt in a single type of debt.

• Mortgage loans
• Bank credit cards
• Installment loans (such as vehicle loans and student loans)
• Retail and gas station credit cards

Based on research from FICO, consumers who have a mix of credit types on their credit report tend to be less risky than those who have experience with only 1 type of credit.?

If you have a total of $150,000 in outstanding debt, it is better if it’s a mortgage balance, car loan, and some credit card debt versus $150,000 in unpaid credit card balances.