Here are the most common mistakes people make when going about the process of trying to improve your credit score:

1. People don’t bother requesting free credit report that they are entitled to each year from the three major credit reporting agencies. A law was passed so three years ago that gave consumers the right to see their credit report upon request at no charge one time per year. This one simple step can have a big impact on making sure your credit report is always accurate. Viewing your credit report only after you have been denied credit doesn’t help you. It only starts the process of figuring out how to improve your credit.

2. Consumers who do request a credit report usually do not know how to go about fixing things on a credit report and will just pick up the phone and start making phone calls to all the companies that have reported derogatory entries (a derogatory entry is a negative entry on your report that indicates a problem area). Next to each entry on your credit report is a phone number that you can call to the company reported the derogatory entry. And let you know how to go about talking to these people, they are have the advantage because they deal with people going about their credit reports every day. Consumers should take the time to learn some of the basic do’s and don’ts of what they should and should not do when talking to companies that have reported derogatory credit entries.

3. Another mistake consumers commonly make is allowing companies to make excessive inquiries to the credit reporting agencies on their credit. Most people don’t know it but each time an inquiry is made, your credit score is reduced by a small amount. Whether right or wrong statistically it has been proven that the more increase being made on your credit report the more likely the any certain individual is having credit difficulties. Of course that may not be the case for any particular individual, but statistically it is true that people who have excessive inquiries on their credit report usually also have poor credit. There will be a listing on your credit report of every inquiry made. You can use that listing as a starting point to contact the companies that made the inquiry and verify that the inquiry was valid and approved by you.

4. The fourth common mistake that people make regarding their credit report is not staying on top of it each year in making sure that all of the entries on the report are accurate. Once you do the initial cleanup of your credit report, an annual review is a fairly straightforward and fast process. This is because you already know your way around the credit industry and are able to take corrective action quickly and correctly. Plus, there should be fewer derogatory entries on your credit report as you are presumably going to be more careful with your credit the more you know about it.

Consumers who are proactive about how to improve credit score can have a much easier time and many more opportunities to borrow money at attractive interest rates even when the economy is poor such as it is today. For example, there are many very attractive real estate investments one can make with the depressed real estate market right now. However, if you have poor credit your chances of getting loans make any real estate investments are slim to none as banks have tightened the restrictions so much that only the very best credit scores are able to acquire credit.

At its simplest level, an individual’s credit score is basically a history of their financial transactions including their taxes paid, mortgage payments, car payments, and any other transaction that involved something other than a direct cash payment for item. The amount of data gathered by the credit reporting system in the United States is staggering. For example, your electric bill is actually a form of credit. Most people don’t realize that even the electric company is a creditor. They provide you with electricity and expect you to pay for it after it has been used. So they are essentially extending credit to you for the electricity. If you fail to make your electricity payments, eventually they will report this to the credit reporting agencies it will show up as a derogatory entry.

Derogatory entries on a credit report of those entries that drop your credit score and also the focus of improving your credit score. Unpaid medical bills, unpaid utility bills, late payments on mortgages, or defaults on credit cards are all forms of derogatory entries. Of these mortgage payment history (if you’ve had a mortgage) is the one that has the biggest impact on your credit score. The assumption here is that if a person is late with their mortgage payment or doesn’t make their mortgage payment at all the emotional and not paying any other bills as having a roof over one’s head is considered a basic necessity today.

From mortgage payments everything else in your credit report secondary. Car payments are important as well. Again the assumption being that if you’re not making your car payment or close to defaulting on a car loan you’re probably in a severe financial crunch. A missed car payment or a late car payment is an indication to the credit reporting agencies that you are in severe financial difficulties.

After house and car comes everything else. Retail store credit cards major credit card such as MasterCard Visa or Discover and medical payments for people who don’t have medical insurance will show up on the credit report. If you have late payments on any of these they show up as derogatory entries. If you’re current on all your payments that is also reflected on your credit report but that doesn’t mean you shouldn’t work on improving your credit score.

One interesting note about your credit score is that you can have a low credit score because you don’t have credit cards, or have credit cards and don’t use them. If you make a habit of paying cash for everything and have the ability to at least get some sort of credit card the matter what the interest rate is, you should occasionally purchase something with a credit card (the amount is not important) and immediately paid off. This shows both the ability to get credit and a willingness to pay. To have a positive impact in your credit score both of these action should be taken together.