|Rich Best has spent 28 years in the financial services industry, as an advisor, a managing partner, directors of training and marketing, and now as a consultant to the industry. Rich has written extensively on a broad range of personal finance topics and is published on several top financial sites. Recent books include The American Family Survival Bible and Annuity Facts Revealed: What You MUST Know Before You Invest.|
How to Improve Your Credit Score
Obtaining the best terms on loans and credit cards can be very difficult when you let your credit score fall below 700 (as measured by FICO). A difference of 50 points in your credit score can cost you hundreds of dollars a year in interest expense. The reality is that you can raise your score fairly quickly by checking your credit report and taking just a few steps. Understanding some of the key factors that credit bureaus use to determine scores can help you maintain a creditworthy score.
Clean up Your Report
Incredibly, tens of millions of people have credit reports that contain errors, such as misreported accounts or credit limits that can be corrected with a simple call to the credit bureau. The credit bureau is responsible for correcting any misreported items, so it's important to put them to work.
Get some Credit
If you don't have a credit card, get one. Your score is based on your use of credit. If you don't have any, you won't have a chance to increase your score. If you have difficulty in obtaining a credit card, try getting a secured credit card from your bank which is similar to a debit card except you make a deposit to the bank which established it as your credit limit.
Use Your Credit Responsibly
If you let your debt get away from you, it will lower your score, even if you make your payments on time or pay your balance off each month. If you have a $2000 limit on a card and rack up $1500 of charges in a month, the $1500 is reported as a balance for that month. Credit bureaus see this as a high debt-limit ratio and will lower your score at least for a month. Try to keep your charges to less than 25% of your credit cards' limits.
Get a Loan
Credit bureaus may keep a lid on your score if your report contains nothing but revolving credit from credit card accounts. Again, they like to see that you can manage different types of credit, so it may be useful to obtain a simple installment loan that you can pay off within a year to boost your score. Some banks offer personal loans, and, of course, an auto loan can also serve the purpose.
Put Up a Fight
If your report contains some negative information due to an old collections account, contact the credit bureau a dispute it. If it is really old, chances are the collection agency isn't even around anymore, or they no longer have a record of the account so they won't be able to verify the report.
Say "Pretty Please"
If you have a long- standing relationship with an issuer or lender, there is a fair chance that you can talk them into removing a negative report simply by asking nicely. If you send a nice letter requesting the removal, you may get a nice response. Even if you don't, a follow-up call is worth the effort. You could also negotiate with the company to re-age your account, which means they will reset the account to a prior status, if you can demonstrate a prefect payment record for a period of time.
The first step you need to take is to get a hold of your credit report. By law, you are entitled to receive one free credit report each year from each of the major credit bureaus - Experian, Trans Union and Equifax. You can also obtain your FICO score from myFICO.com for a small fee.
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