Improve
Your Credit Rating
Blotches
on your credit report can really cost you.
But, don't despair. It's never too late to
become creditworthy. Here are 5 major tips:
1. Order your credit reports.
Find out what the top three credit bureaus --
Equifax, TransUnion and
Experian -- are saying about you. It's
likely that they're all slightly different.
Yes, different! Creditors don't have to
report to all three credit bureaus, so they typically report to the credit
bureau to which they also subscribe.
Thanks to a
new
federal law, you are now entitled to one free credit report from each
of these credit reporting agencies per year.
One more caveat: You'll be able to order
all three credit reports at one time or at different times throughout the year.
It's your choice. But be sure to order from the centralized agency. If you go
directly to the credit reporting agencies, you will be charged unless you fit
another criteria for a free report.
The new ruling doesn't replace the other
ways to receive a free credit report.
You're still entitled to a free credit
report if: you've been denied credit, insurance or employment based on your
credit report or you're applying for unemployment or receive public assistance.
Also, if you currently reside in a state that already offers an annual free
credit report from each credit reporting agency, such as Colorado, Maine,
Massachusetts, Maryland, New Jersey or Vermont, you are entitled to the report.
Georgia residents are entitled to two free annual credit reports from each
credit reporting agency.
If not, you can order a credit report from
each bureau for around $9.
2. Examine your reports carefully.
Nearly every consumer has an error on at least one credit report from one of the
major credit bureaus, says Rhode. Credit bureaus generate your report on
information they receive from your creditors, and they don't verify the
information.
Keeping your credit report a true
reflection of you is -- like it or not -- your job. Get ready to clean and
polish. Carefully look for everything from typing errors, outdated and
incomplete information and inaccurate account histories. You'll want to make a
thorough list of items you dispute and the reasons why. Be meticulous.
For information on reading your report, see
"How
to read and understand your credit report."
If the negative information in your report
is true, only time and improved habits can change that. Late payments and
charged-off accounts remain on your report for seven years, bankruptcies for 10.
Most creditors, however, look for a pattern of payment rather than focusing on
one-time or rare occurrences; so consistent on-time bill payments will improve
those blemishes.
3. Double-D strategy -- dispute and document.
Remember, a bad report costs you money. You can either complete the dispute form
provided with your credit report or
write a letter. Clearly identify each mistake
and state why it's wrong. A recommendation is to send a photocopy of your credit
report with the mistakes circled to the reporting credit bureau.
Include copies of supporting documents.
Keep copies and records of all the forms, letters and documentation that you
send the credit bureaus, plus dates sent. The credit bureau must investigate any
relevant dispute within 30 days of receiving your letter. Any item that is not
verified as accurate by a creditor is removed.
Sometimes it's necessary to contact your
creditors to resolve mistakes.
If the credit bureau makes any changes to
your credit file, it will send you the results and a free, updated copy of your
credit report. Once a negative item is removed from your report, the credit
bureau cannot put it back on unless a creditor verifies its accuracy and
completeness -- and sends you written notice.
4. Solve and dissolve debt.
Now's the time to
devise a spending plan that reduces your debt
and sets you up to pay on time, every time.
If you're having difficulty making
payments, be proactive. Call your creditors and negotiate to keep your accounts
current and from being reported as delinquent or "bad debt." You can ask for
reduced monthly payments or even change due dates to balance out your monthly
bills.
The same strategy can be used for
fixed-loan payments. Remember, though, that this is a short-term strategy.
You'll pay more interest to extend the repayment schedule, but it allows you to
stay current and save your credit rating. Use the extra money to pay off debts
one at a time, gradually increasing payments to other debts.
Deal with any collection accounts. Unpaid
collections are worse than paid collections. You can negotiate a payoff
settlement that reduces your bill, plus demand that all derogatory remarks are
removed from your credit report or at least reported as paid in full. Be sure to
get verbal agreements in writing before sending off your payment.
Slowly close out unneeded or unused credit
accounts. Most experts recommend carrying between two and four major cards. But,
be cautious when canceling because closing accounts can negatively impact your
credit score, commonly called a FICO score. FICO considers the ratio of total
debts to total available credit. A good rule of thumb is to keep your revolving
debt to 50 percent of your available credit.
Remember that cutting up the card doesn't
close out the account. Here's a
step-by-step guide to smartly close out your
account.
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Other tips: |
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Close
out your newest accounts so that you don't lose your longer
credit history. |
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Close
out accounts slowly over several months. |
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Verify
that all accounts you've closed are reported as "closed by
consumer" for the best report. |
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Even if
creditors offer to raise credit limits, allow yourself only
moderate credit limits. |
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Keep
your balances low and avoid revolving balances. |
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5. Add stability to your credit file
You can also work to add positive information and show stability in your credit
file.
You may have been denied credit because of
an insufficient credit file, yet you have credit. Some creditors -- such as
travel, entertainment, gasoline card companies, local banks and credit unions --
may not report your credit history to the credit bureaus. You can try asking the
credit grantors to report your account information and monthly payment history
to a credit-reporting agency. Not all will do that. So, in the future, before
opening a new account, ask if your on-time payments will be reported monthly to
a credit-reporting agency, recommends Myvesta.org.
If you have really bad credit -- perhaps
even filed bankruptcy -- don't let your credit status go dormant. The faster you
begin to re-establish good credit, where you pay on time, every time, the faster
you'll improve your credit score.
Build a solid credit history. A
secured credit card offers those with no credit
and those repairing their credit this opportunity. Shop around for the best deal
available, but limit your applications. Credit bureaus look at how many new
accounts you've opened, and the number of "inquiries" for new accounts that are
listed. A sudden flurry of "inquiries" results in a lower score, because many
times consumers anticipating money problems increase their credit lines.
Inquiries made by creditors wanting to make "prescreened" credit offers are not
counted.
Lastly, open a savings
account at your bank. This shows creditors that you are working to save and that
you have reserves to repay debts.
Mortgage Glossary6
