Credit scores reflect your financial health. They tell a lender how well you manage your financial obligations and credit. It is easier for a borrower with high credit scores to obtain a loan than one with low scores. Improving your credit scores can translate to lower loan fees and better rates when purchasing insurance. Property managers use credit scores when evaluating a renter's application, as do some employers, when considering an applicant for employment or promotion.
Review Credit Reports
The three major credit-reporting agencies are TransUnion, Experian and Equifax, and each may report a different credit score for the same individual. Before you make credit improvements, you must understand what is on your credit reports, as well as your credit scores. You are entitled to receive one free credit report each year from each of the three major credit-reporting companies. To obtain free credit reports, visit AnnualCreditReport.com.
Removing Information
After receiving a copy of your credit reports, read each one carefully. Look for inaccurate negative information. Your report might also have negative, yet accurate information, which you can have removed. Certain negative items, such as foreclosure or bankruptcy, stay on a report for a set number of years. Sometimes credit reporting agencies fail to remove the negative items after the time frame. Each credit-reporting agency has its own procedure for removing information from your credit report. Removing negative information whenever possible raises your credit scores.
Resolving
Some negative information on the reports needs to be resolved before having it removed from your credit reports. This involves contacting the party that reported the item, such as an unpaid medical bill or other unresolved issue.
Managing Credit
Paying a creditor one day late can adversely affect one's credit scores. Another consideration is your ratio of debt. The greater span between your open credit and what you've actually borrowed improves credit scores. For example, if your credit card limit is $5,000 and you have only charged $1,000, you will look better from another person with the same credit limit who has charged $4,900.
Opening Credit
When establishing credit, it is necessary to have creditors, such as a credit card or car loan. While you need to have creditors, it is a bit of a balancing act, as having too many can be a problem, as can having none. Paying off credit cards improves your credit, yet canceling the card after paying it off can lower your credit score because it lowers your total available credit.
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