This post comes from Angela Colley at partner site Money Talks News.
Much the way your final grade summarized your command of a course in school, your credit scores are the distillation of everything in your credit history. And those three-digit numbers can affect you in many ways, including interest rates you'll pay and the size of your insurance premiums.
Fortunately, credit scores aren't set in stone. In the video below, Stacy Johnson shares his best tips for raising your credit scores. Check it out, then read on for more ways to give your scores a boost.
Now let's flesh out Stacy's tips and add more:
Find and dispute mistakes on your credit reports.
Order a free copy of your credit reports from AnnualCreditReport.com
. By law, the three major credit bureaus -- Experian, Equifax and TransUnion -- have to give you one free copy a year. Then, dispute any errors. They're not uncommon. A study
(.pdf file) by the Policy and Economic Research Council found errors in 19% of the credit reports it looked at.
You can dispute errors online through each bureau:
Pay down credit card balances. The amount of available credit used makes up 30% of a credit score. Stacy suggests paying down your credit card balances to no more than 30% of your available credit limit. For example, if you have a $1,000 credit limit, don't carry a balance higher than $300.
Raise your credit limit.
If you can't pay down your balance, ask your credit card company to raise your credit limit -- and don't put any more debt on the card. By upping your total available credit, you'll lower your credit-to-debt ratio
and increase your scores.
Don't close accounts. The length of credit history makes up 15% of a credit score. Closing old accounts will shorten your credit history and hurt your scores. If a card has no annual fee, keep it open.
Don't apply for credit before a major purchase. Don't apply for a new credit card or loan six months to a year before you plan to make a big purchase, such as a house.
Pay on time. If you have past-due accounts on your credit reports, pay them now and then keep your accounts current. That includes your credit card and all other bills. Cellphone bills, utility payments and even rent can appear on your credit reports. Don't be late.
Ask for a good-will adjustment. If you are late, ask your creditor for a good-will adjustment. This means a creditor removes one or two late payments from your credit reports. To get one, you'll need a good history with the company. You'll also need to ask. No creditor will offer to forgive a late payment.
Some negative marks (like a foreclosure or tax lien) aren't going away, but collectors and lenders may remove charge-offs or collection accounts if you negotiate with them. Before you pay anything, write a letter to the creditor and ask to have the account removed or marked as "paid as agreed" in exchange for your payment. After the creditor agrees in writing to remove the negative mark, pay the balance. It's called "pay for delete," and Creditmagic has a sample letter you can use.
Use an old credit card. Credit card companies often stop reporting your account if you no longer use the card. Dust it off, use it to make a few small purchases, and the creditor will start reporting again. Doing so increases your available credit limit and your credit history length, since the old card is showing active again.
Apply for different types of credit.
I'm a renter with two paid-on-time credit cards and no other loans. I should have great credit, right? Yes and no. While my credit score is fine, I've been denied credit twice because I don't have a good credit mix. The types of credit you have makes up 10% of your scores, and lenders like to see that you can handle loans that are both revolving (credit cards, for example) and installment (a mortgage
or car loan
If you have only a credit card, add a small personal loan to the mix -- perhaps a signature loan from a credit union. Paid on time, blended credit boosts your scores.
Shop for credit fast. When you shop for new loans or credit cards, do it quickly. When the credit bureaus see several credit inquiries for an auto loan within 30 days, for example, they assume you're comparison-shopping and lump all of the inquiries into one. Inquires make up 10% of your credit scores -- the fewer the better.
Open a secured card.
If you can't qualify for a traditional credit card, open a secured one. Secured credit cards
are backed by money you put into a deposit account, so they're low-risk to the lender and easier to get. You'll boost your credit scores by paying on time each month, and you'll likely be able to graduate to an unsecured card. And you'll get your deposit back.
Don't consolidate your credit. I once worked with a mortgage adviser who would tell customers to consolidate all of their credit card debt into one credit card and cancel the other accounts. That's bad advice. By closing cards, you shorten your credit history. And consolidating debt doesn't remove it. It only shuffles it around.
But there's an exception to this rule: If you're paying ridiculously high interest on one credit card, transferring the balance to a lower-interest card will save you money. But keep both accounts open if there's no annual fee.
Rehab your student loans.
Defaulted student loans hurt your credit scores. If you haven't been paying your student loans on time, contact the lenders. Federal student loans are eligible for payment plans. For example, the Income-Based Repayment Plan
lets you pay off your loan in monthly installments based on your income.
Make sure every company reports. When I was trying to boost my credit scores, I contacted every company I paid monthly -- including my cellphone provider, cable company, and electric company -- and asked them to report my payments to the credit bureaus. Most did, and I saw a small boost in my scores within 60 days.
Find out when your balance is reported. Credit card companies have a "balance date," the date they report your balance to the credit bureaus. That date is rarely the same day as the date your payment is due. Thus you can pay your balance off in full every month, but your credit report could still reflect a balance. Contact your creditors, ask them when the balance date is, and pay your bill before that.
When you co-sign a loan, you agree to take on the debt if the borrower stops paying. Don't risk financial damage for someone else's gain. Check out "3 reasons you shouldn't co-sign that loan
" -- and just say no.
Start early and wait. No matter what any credit repair service tells you, it takes time to turn a blemished credit history around. You typically won't start to see improvements for at least a month, often several. If you're planning on making a big purchase, start working on your credit six months to a year in advance.
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