Cleaning your credit not only helps when qualifying for financing, but maintaining a clean credit history can help you find the best auto insurance rates and affect employment options. Improving credit is no easy task, and credit score increases occur gradually with good habits. Learn what it takes to clean up your credit, and then take steps to prove that you're creditworthy.
Avoid Late Payments
Credit scores are largely determined by how well you repay your debts each month. One missed payment may not ruin your score, but if you never submit a payment on time, or if you are known for late payments with creditors and lenders, you can anticipate a huge drop in your score. Fortunately, bad credit resulting from a bad payment history is reversible with smarter choices. Begin cleaning your credit by assessing your payment record. Do you submit payments past the due date? Do you skip payments? Start fresh and from this point forward, always send payments before or on due dates. Creditors and lenders will start reporting timely payments, and your score will start to improve.
Control Debt
Don't view credit card debt as another monthly payment. Carrying excess debts -- balances more than 30 percent of the credit limit -- will harm your personal score and hinder efforts to clean up your history. Credit cards provide short-term solutions to money issues. But if you use credit for every purchase and only pay the minimum due, you increase your chances of accumulating huge balances. Control debt by stopping unnecessary spending. Use credit sporadically, and only if you can afford to pay off a charge in full by the next statement.
Free Credit Report
The Annual Credit Report website is the place to check your personal credit reports for free. If you have a credit account and a credit history, you're eligible for one free report each year from each bureau. You aren't required to enter your credit card information, and acquiring a free report is not subject to signing up for additional services. Go to the Annual Credit Report site (see Resources), enter your personal information, answer a few questions to verify your identity and then access reports from Experian, TransUnion and Equifax. Checking your reports is crucial to cleaning up reporting mistakes made by creditors and identifying identity theft early.
Collections and Judgments
Paying a collection account or judgment may not eliminate the negative item from your report. But if looking to finance a car or house, paying off a collection or judgment and asking the creditor to include a statement saying that the "account is paid" can help your qualifying efforts. These items stay on reports for seven years. But paying off an old debt may convince a creditor or lender to look past the delinquency and conclude that you're responsible to handle future loans and credit.
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