What is on your credit report makes all the difference on your next loan application and your ability to borrow money. A good FICO score is the key to success. However, if your credit has taken a beating in recent times, you will have to do a little dusting off. The good news is there is still hope and you can easily impress a scrutinizing loan officer by implementing a few simple strategies discussed in this article.

How lenders gauge your credit worthiness

There are other factors lenders look at when underwriting a loan. To track these factors, lenders use FICO scores to put everyone on a scale and quantify credit-worthiness. This is a useful way to make decisions about a persons:

• - loan balances
• - ability to pay
• - payment habits
• - history of seeking credit

To repair your credit, here are some tricks and tips you can use to fix your FICO score.

Step 1: Make a plan

Planning on applying for a loan before you do can affect the outcome. If you have a poor credit score, a window of 3-6 months will give you plenty of time to make important changes. What is most unfortunate is how little attention people devote to planning.

A poor (or less than exemplary) credit rating will hinder your approval status, but also the interest rate you’ll be approved for. Planning before applying improves your chances of getting approved, and it saves you money with lowering borrowing costs.

Step 2: Pay down loan balances

In simple terms, if you are using all of your credit (or worse, exceeding it), you are not likely going to be approved to add yet even more credit to your portfolio of debt.

As a general guideline, you should not exceed 75% of the credit limit on each account. Notice how I’ve said the credit limit for each account rather than all of your accounts combined. If you have a credit card with a $ 1,000 limit, pretend the limit is only $ 750 and stick to that limit. Apply the same formula to all of your other cards and their respective limits. This practice can impact your score dramatically, which will ultimately help you borrow money successfully. Use the next 3 to 6 months to bring your limits down to ideal levels.

Step 3: Be aware of your ability to pay

Beyond usage, another factor relating to loan balances will help you. If you have too many accounts open and not enough income to service those accounts, lenders might classify you as a risk that they’re not willing to take.

Unfortunately, if this is the case, there’s little you can do. You can pay off your balances, which is good for your FICO score to begin with, but it won’t get rid of excess credit, which will still affect debt ratios.

If you’re tempted to close unused accounts, think again. Closing down accounts is not universally a good idea as it can negatively affect your credit. The only advice I have here is to refrain from opening up useless accounts in the first place (like department stores or specialty cards that you really don’t need in the long run) and simply lower your balances. Working to improve other factors will help your score overall.

Step 4: Shape up payment habits

If you’ve had late payments in the past, your score will take a hit as a result. However, if you start to improve your payment history from this day forward, your improved activity will be reported and you will start to notice boosts in your FICO score. Promise yourself to make all payments on time, from now on without fail!

Step 5: Don’t try to get credit

If you plan to apply for a loan in the next 3 – 6 months, do not seek any credit whatsoever between now and the time that you apply. Every time you try to get credit, you get a “hit” on your report. Hits bring your FICO score down. Though the impact is not huge, the impact from repeated incidents (and being subsequently rejected) does not look good to prospective lenders.

Putting the above strategies to use and you’ll see improvements in your FICO score. To borrow money, lenders just want to make sure you are a good credit risk. They want to lend as much as they can. That is how profit is made, after all. However, before profits, lenders have another priority and that is to protect their capital. If you do all your homework, and launch a plan in advance and put the strategies discussed in this article into play, you will come out ahead.