Five Steps to Improve Your Credit

Thursday, November 15, 2012

Five Steps to Improve Your Credit

It is never too late to improve credit scores, regardless of how poor they may be. The following describes a five-step approach to improve your credit score and also your credit worthiness with your creditors.

1.    Request Your Credit Report

Start by requesting and reviewing your credit report from each of the three major credit reporting organization, Equifax, TransUnion, and Experian. By federal law, every consumer can ask for and receive one free credit report from each of the above agencies once every year. 

You may also receive a free credit report if you were denied credit, employment or insurance if the denial decision was influenced by your credit report.  

Reviewing your credit report is crucial because not all creditors report to all agencies, and not all agencies contain the same details on your debts. Credit reports contain a high percentage of inaccuracies on consumer debt.  Knowing the details of your credit reports provide a good starting point for you to improve credit scores.

2.    Scrutinize Your Credit Report

Carefully review your annual credit report for inaccuracies, completeness, blatant errors and even misspellings. According to the U.S. Public Interest Research Groups survey, as much as 25 percent of all errors in credit bureau reports are serious in nature. As strange as it may sound, the onus is on you to ensure that your credit record is accurate. Credit bureaus receive their information from your creditors but they are under no obligation to verify the accuracy of the information they receive for your file.

As you review the reports, compile a list of errors to address and the reasons for the corrections you are requesting. Negative entries will take time before their impact stops affecting your credit score and there is no way to hasten that process. Many bankruptcies can remain 10 years on your record, while charge-offs and late payments could remain for as long as seven years.  

3.    Dispute Errors and Inaccurate Credit Report Entries

Submit a copy of your credit report with the errors, inaccuracies, misspellings and mistakes clearly marked on a copy of the report. Supporting documents, including correct dates, which prove the errors in the credit report, should be provided to the credit agencies.

Disputes must be investigated and resolved by the credit bureaus within 30 days of the receipt of your dispute. If a creditor cannot verify a disputed item, that item must be removed from the credit report.  As items are disputed on your credit file and changes are made, you will receive updates of such changes in writing from the agencies.

4.    Take Action to Reduce Your Debt

In this stage you should work with a budget to reduce your debt, even if it means contacting and working with your creditors to provide you with a reasonable repayment plan to dissolve your debt. Although, this may extend your debt repayment period and incur additional interest, it will prevent your debt from becoming bad or delinquent.
Unpaid collection items on your credit report will hurt your credit more than paying the items or negotiating a settlement with your creditors. Be sure to pay on negotiated settlements only after receiving the settlement agreement in writing.

5.    Adopt Healthy Credit Habits

Obtaining proper knowledge and developing a healthy attitude towards credit will improve credit scores and develop a solid credit history for you.  The following tips will assist towards that end.

•    Make on-time payments to rebuild good credit faster.
•    Holding too many credit cards is often the source of bad credit. If you have more than two credit cards, consider slowly cancelling the extra cards because they can hurt your FICO score. Ideally, you should only use 50 percent of your available revolving credit.  
•    Spread out the closing of your credit cards over a few months.
•    Close out credit cards with the shortest credit history first.
•    Resist the temptation to accept increased lines of credit from creditors.
•    Pay off credit card balances as quickly as possible and avoid revolving balances
•    If seeking new credit, ensure that the new creditor will report your on-time payments to the credit bureau. If they do not, then seek out one who will.
•    Open a savings account and make regular deposits to demonstrate your intention to provide for your debt repayment
•    Opening a secured credit card will help you develop credit or help rebuild damaged credit

These five steps can be used to improve credit scores in just a few months if followed consistently and thoroughly. Having good credit is important as it reduces loan and mortgage interest payments, opens up job, housing and other credit opportunities that would not otherwise be available to you.

About the author-

Jennifer Avery is a freelance writer who seeks to educate consumers on how to improve their credit.


Unknown said...

Thanks for sharing such an informative post on Fair credit reporting act. Your credit score is determined by an algorithm developed by the Fair Issue Corporation. Since its inception, three corporations, called a credit bureau specialize in collecting and reporting on financial histories. Those three companies are Equifax, Experian and TransUnion. While, the exact formula used to calculate your credit score is a tightly guarded industry secret, these companies provide general guidelines about financial behavior that can affect your credit score.

Rajiv said...

Thanks for sharing your thoughts, Steve.

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