Wednesday, June 15, 2011

Tricks to Improve Credit

Tricks to Improve Credit

Credit is a big part of American life. Consumers must undergo a credit check when applying for any type of credit, such as a mortgage loan or credit card. Consumers also must submit to credit checks when renting an apartment or seeking employment. Having good credit is important to a successful financial life. There are ways to improve your credit standing and thereby improve your chances of realizing that success.

Pay Bills on Time

    How you pay your bills accounts for 35 percent of your FICO score, according to the Fair Isaac Corp., inventors of the FICO scoring model. Late payments will lower your score. The later the payment, the more adversely it affects your credit. Accounts that are charged-off or sent to collections will continue to negatively impact your credit and credit score even if they are later paid. The same applies to judgments and tax liens. These items are a matter of public record and indicate to lenders that you were not able to honor your financial obligations. If you want to improve your credit, get current if you aren't. The sooner you catch up on past due payments, the less damage to your credit. Additionally, pay all bills on time each month. If you are having problems making a payment, speak to your creditor and try to work out a payment plan before the situation becomes dire.

Pay Down Balances

    30 percent of your FICO score is based upon how much you owe. Your credit score takes into account the amount of available credit that you have and how much of that credit you're using at any given time. Paying down balances and keeping them low improves your score. If you max out your credit cards, you exceed the amount of your available credit on that card and your score will take a hit. Also, as you pay down installment-type loans, such as mortgages and car loans, your score will improve as well because it decreases the amount of your overall debt load. Be careful when taking out new credit cards and initiating balance transfers. This may actually lower your score. The goal is to pay it down, not just move it around.

Limit New Credit

    New credit makes up 10 percent of your credit score. FICO rewards periodic new credit that appears on your credit report. However, taking out too much new credit within a short span of time may reduce your score for two reasons. First, another 10 percent of your score is length of credit history. Each new account that you open decreases the overall length of your credit history and may lower your score a bit. Secondly, each time you apply for credit, the creditor places an inquiry on your credit report. Too many recent inquiries indicates to lenders that you are seeking a lot of credit because of financial difficulties. For the best score, only apply for new credit when you need it. Avoid taking out credit at the retail checkout just to save a few dollars. It may do more harm than good.

Dispute Errors on Your Credit Report

    Errors on your credit report can lower your credit score. Under the Fair Credit Reporting Act (FCRA), consumers have the right to dispute inaccurate information on a credit report. The credit bureaus are required to investigate your request and must either remove or correct any erroneous data within 30 days. You may file a dispute at the website of the credit bureau, by phone or mail. Before filing a dispute, you will need a recent copy of your credit report. In 2003, Congress enacted the Fair and Accurate Credit Transaction Act (FACTA), which gives consumers the right to obtain one free credit report each year from the three major credit bureaus: Experian, Equifax and TransUnion. FACTA established a website specifically for this purpose: annualcreditreport.com. You can also order the report directly from each bureau's website, by phone or mail.

0 comments:

Post a Comment