Lenders, landlords and insurance companies will use your credit score to assess risk factor. A poor credit score adversely affects your ability to rent an apartment, buy affordable insurance, or obtain a loan, mortgage, or low-interest rate.
Know your credit score and credit history. Request a free credit report at www.annualcreditreport.com. Three major government-approved credit bureaus own and operate annualcreditreport.com:
You are entitled to one free credit report annually from each of these companies. In some cases, such as a credit dispute, you may request an additional free report within the same year. Obtain a credit report online, or phone 1-877-322-8228. By mail, send an application to:
Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281
Request reports from at least two of the three companies. Each uses different methods to process credit information, and scores can vary. Lenders calculate risk by using the overall average or median score.
While the credit report is free, the companies charge a fee for the credit score itself.
Some companies, such as www.creditreporting.com, offer free credit scores. The consumer must subscribe to a service or trial membership to be eligible.
How to Improve Your Credit Score
1. Thoroughly check each credit report, and notify the credit bureau of errors. For quicker resolution, contact the financial institution directly. Common errors in a credit report may include:
– unexplained late payments, collections or other bills
– accounts which have been paid off in full or on time, but are listed as “settled”, “paid charge-off” or “paid derogatory.” These should appear as “current” or “paid as agreed.”
– inaccurate report of credit limits
– negative items older than seven years (ten if bankruptcy is involved). After seven to ten years, these charges should drop from your credit history.
– closed accounts still listed as open. Closed accounts should appear as “closed by consumer.”
2. Make regular and timely bill payments. Late payments and a sporadic payment history will negatively affect your credit score.
3. Pay “past due” accounts. Past due accounts not only add late charges, but suggest that you are unreliable and likely to default on payments. If your payment history is good, request a goodwill adjustment. A company will often drop one late payment from your record.
4. Pay vanishing collections. These may be old unpaid debts you are unaware you had, but which show up in your credit history. If you feel an old bill is unfair, you may dispute the charges. If the amount is small, collection agencies often won’t challenge your dispute. One way or another, it is important to remove unpaid past bills from your credit history.
5. Do not use more than 50% of the credit limit on any one card. Spread debt over more than one card, rather than loading a single card. Although it may seem prudent to use only one card, the card will appear overburdened.
6. Be sure credit card companies report total limit on the cards, not just the debt. Some credit card companies report only the debt, and the card appears to be at its maximum limit.
7. Build a good credit history by using older credit cards. Credit history will seem unreliable if you often apply for and use new cards. The older your history with a credit card or financial institution, the better your credit score will be.
8. Before applying for a loan, avoid sudden changes in income or spending. Major expenditures, or a change in employment income, can affect one’s credit score.
9. If you have trouble making payments, contact the creditors. Arrange an alternate payment plan, or inquire into ways of reducing your payments. Dispute any incorrect charges.
10. If acquiring credit is a problem, use a secured credit card. A secured credit card requires an initial payment, which becomes the maximum limit on the card. The money remains in trust as security against the debt. Use the card responsibly. Pay the amount due, in full and on time. A reliable payment pattern will boost your credit score.
Credit repair is never instant. Even with the removal of unpaid debts, it takes time to establish a regular, timely pattern of payments. If you choose to use a credit repair service, beware of companies who claim to fix bad credit immediately, or forever. Run a free online check of the company at the Better Business Bureau (www.bbb.org). A reputable website is Lexington Law (www.lexingtonlaw.com).
The U.S. Federal Trade Commission suggests using a credit repair company that offers in-person counseling. Certified counselors may provide non-profit services through local offices, universities, military bases and housing authorities. The FTC offers information online at “Fiscal Fitness: Choosing a Credit Counselor” (www.ftc.gov/bcp/edu/pubs/consumer/credit/cre26.shtm).