A credit score is a numerical valuation of your credit history. It gives a snapshot of your overall credit worthiness and provides lenders with a basis for approving applications and determining interest rates. Your credit score plays a large part in being able to make purchases, such as cars and houses, and most lenders have minimum credit score requirements. If your score is low, you can improve it by paying your debts on time and following a few guidelines.
Dispute Incorrect Information
About 80 percent of credit reports have mistakes that can lower an individual score, according to the Chicago Sun-Times. These errors can include incorrect reporting of credit limits, payments and debt amounts. Credit bureaus also make larger mistakes, such as placing accounts on your report that are not yours. Federal law grants you the right to dispute incorrect information and forces credit bureaus to verify the data or delete the item within 30 days.
You can submit a dispute on the credit bureau website, over the phone or by mail. You will need to provide your name, Social Security number and current and previous address if you've moved in the past two years. List all the inaccuracies and, if necessary, provide the correct information.
Lower Your Utilization
Although many people think creditors want you to fully use your credit, the truth is, using all of your available credit means you are racking up more debt in relation to your income. This makes it harder to meet your credit obligations and makes you risky to new creditors, causing a drop in your score. Credit bureaus prefer to see less than 50 percent utilization but less than 35 percent is ideal.
If your utilization is high, you can improve your credit score by paying those balances down as quickly as possible and keeping them low. You may be able to transfer balances to different cards or request a higher credit limit to lower your debt-to-limit ratio but credit bureaus award higher scores to people who simply pay their debts.
Unsecured Credit
Although secured credit such as mortgage and auto loans help your credit history, potential lenders prefer to see how you handle riskier unsecured credit obligations, such as personal loans and credit cards. Make your unsecured debt payments in full and on-time every month to prove you can handle additional credit. If you don't have any unsecured credit, you can usually qualify if you have a good history of paying secured debts on time. Since you need a good credit history for most unsecured debt applications, this is often the last step of improving your credit score.
Avoid Excessive Applications
When you apply for new credit, do not file multiple applications in the hopes that at least one company will approve you. This causes a lot of credit pulls, called inquiries, and can lower your credit score. Instead, call each creditor and ask about the basic income and credit eligibility guidelines, interest rates, credit terms and any available perks, such as reward programs or airline miles. Submit one application to the creditor whose credit criteria you meet and who can offer you the terms you want.
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