How To Improve Your Credit Score
This guide will help you know what a credit report and score is, how to review your credit report, tips on how you can improve your score and information regarding how to dispute discrepancies you may find on your credit profile.
What is a credit report and how is it used?
How are we, the average Joe or Jane on the street, supposed to build (or rebuild) our credit when no one teaches what’s on our credit report to begin with? Well, here’s the answer:
- Contact information (no impact on credit score): It simply includes the names, addresses, employers, and, sometimes, marital statuses under which you have applied for credit in the past.
- Credit & Trade Lines: Details on the various lines of credit the consumer has had in the past 7-10 years, including balances, terms and their history of on-time payments.
- Public Records: List of court actions, including bankruptcies, judgments, tax liens and possibly evictions over the past 7-10 years
- Inquiries: List of creditors and businesses that have looked at your credit in the past 2 years. Those you authorize as part of an application for credit may impact your score (slightly), while others do not.
- Personal Statement (no impact on credit score): Up to 99 words the consumer may add to their own report. We generally suggest this only be used to clarify report errors.
Since up to 25% of all credit reports contain a significant error (usually in the credit lines or public records section), you should know where to go to dispute and resolve the error. It’s no guarantee, but go directly to the credit bureau’s home pages (EquiFax.com, Experian.com, and TransUnion.com) and follow the “Dispute Error” instructions.
Think of your credit report as your own personal file that holds information about your where you reside, what type of debt you owe on and what your payment history is with your lenders. Your credit report file will also include whether or not you’ve filed bankruptcy and if you’ve been sued to collect upon a debt you owe. If you have mortgage or automobile payments those will show on your credit report as well.
Creditors, lenders, employers, insurance companies or property management firms may purchase a copy of your credit report in order to determine your creditworthiness. They will look for positive items such as an established credit history, high balance to available credit ratios (do you have access to credit but keep the balances down?), on time bill payment, what types of credit do you use and have you recently applied for new credit?
Importance of Credit Scores
The word credit can be heard every day from the TV, ads in the paper, and even the radio.
What is credit? It is the ability to borrow based on the promise of repayment. Lately, everything seems to be based on a person’s credit score. Here are a few ways credit scores affect the price you pay for the following items:
- Personal Life Insurance: Having a bad credit score can drop you to the lower tiers causing you to pay a higher premium, though your health is still the most influential factor.
- Auto and Home Insurance: Poor credit can mean you are denied insurance completely or you will pay more. Before obtaining insurance from a company, ask them, “What percent of the premium will my credit score account for?”
- Employment: The trend is growing for companies to pull a credit report along with a background check. They want a stable employee. They are not allowed to ask you why you have a bad score, but you are allowed to tell them. Be prepared to discuss it. Employers can pull credit to promote or transfer an employee as well. Be open and willing to explain what happened.
- Housing: Property management companies will likely pull your credit report to determine approval or denial, though many do not take into account any medical collections. The larger the company the stricter they typically are. Small locally owned companies tend to get to know the individual.
- Loans: The higher the score, the better the interest rates you pay for standard bank loans (auto, home, signature). If your score is too low (mid to low 500s), you may be denied a loan completely or receive an interest rate in the high teens to twenties.
Check your credit report every year at to check for fraud or misreporting. While 8 in 10 credit reports contain some sort of error, one in four contains such an error significant to cause you to be denied credit in spite of any other positive information.
As you can see, building and maintaining a good credit score can positively affect a major part of your life.
Have You Pulled Your Credit Report Lately?
Information found on credit reports and that three-digit number called a credit score have become such integral decision factors in our lives. Do you feel as though you are now judged by your credit report and credit score more than ever?
We have the opportunity—and the right—to see our credit reports and ensure that they are accurate, which is especially important before you apply for a loan. Here are some steps to taking advantage of the FACT Act to monitor your own credit:
- Pull your credit regularly at www.AnnualCreditReport.com. We are entitled to one credit report from each of the three bureaus every 12 months. That translates into three credit reports per year for FREE! If you really want to stay on top of your credit monitoring, pull one report every four months rather than pulling all three at once.
- Keep in mind that we are able to dispute inaccurate information. If you see something that just doesn’t look right, dispute it with the credit bureaus by going directly to their websites or by writing to them. If the item is negative, but it is indeed accurate, it will have to stay on the credit report until it is due to come off (generally 7 years for negative information).
- Anything a credit repair company can do legally, you can do for yourself. Just as you can pay someone to cook your meals, clean your house, and mow your lawn, you can also pay somebody to “clean up” your credit. Save yourself some (or a lot of) money by writing your own dispute letters.
- Keep a paper trail. One advantage of sending a dispute by mail is that you can include copies of supporting documentation and send them by certified mail. Always write down who you talk to when you talked to them, and any other pertinent information each time you speak with a creditor. It’s easy to get lost in large organizations with multiple international call centers.
Steps you can take to build a better personal credit report:
First things first, get a copy of your credit report and study it. Look at the same information that others are looking at when determining your creditworthiness.
If something looks out of place make a note of it and begin fact checking. You may find a discrepancy on your report and will want to take the appropriate steps to resolve the issue. First, write a letter disputing the information on your report. You will want to specifically identify each issue you’ve found and include copies of supporting documents. Do not send the originals. Also, make sure you keep a copy of your dispute letter as well. The second step would be to tell the creditor or entity that has reported information incorrectly within your file. Similar to step one, only send copies of supporting documents and make a copy of the letter and documents for you to keep.
Once you’ve ensured that the information is correct on your report you will want to review the primary factors that are used in determining your credit worthiness.
- Do you have collection debt that needs to be resolved?
- Do you pay your bills on time?
- Do you owe a high percentage of your credit limit on your accounts?
Those items all have a fairly heavy impact on your credit profile.
Begin setting goals and prepare a plan that allows you to resolve any issues identified. Perhaps you’ve found an old collection debt that you can make a priority to repay or maybe you’ve seen your balances maxing out. Regardless of the specific issue set goals to remedying them as soon as possible. This is also a good opportunity to create a household budget and set immediate, short and long-term goals.
If you run into any issues along the way or just need advice on where to begin or what to do next you are more than welcome to contact Debt Reduction Services at 1-877-688-3328 and speak to a certified Consumer Credit Counselor. They can help you with your budget as well as help you identify areas that you can potentially save money in. Be wary of credit repair or debt settlement as you don’t want to find your situation become worse by working with the wrong company.
For more information on how to improve your credit report visit consumer.ftc.gov for an abundance of resources that are aimed at protecting you, the consumer, as well as improving your overall financial picture.
How to Dispute Discrepancies on Your Credit Report
The odds of there being an error on your credit report are pretty good. Errors do occur frequently, but they can also be fixed. Here is the recommended way to dispute errors with the Consumer Reporting Agency.
- Check your credit report at least annually. Look for errors and fraudulent activities.
- Contact the credit bureaus that have the error. Each bureau has an error dispute option on their website:
Disputing the error online is the quickest and easiest way. You may also do so by phone or mail. See the pages linked above for more information.
If you have any questions, would like to discuss your financial challenges, or are just looking for advice, please call us at your convenience. As always, we are here to help and look forward to hearing from you.
Correcting Credit Report Errors from Defunct Creditors
Having taught nearly 500 personal finance classes since 2004 to over 8,000 individuals, it’s not often that I get a question about course topics that I haven’t heard before. I love it when I do, though, and that’s exactly what happened last week at a local housing authority. Here is the question:
What can I do if the title loan company to which I once owed money but have paid off in full has gone out of business but is still listed on my credit report with money owing? At first, it sounded completely new, but in the end, much of the method for dealing with this situation goes back to the typical process for correcting one’s credit report. Here are the suggestions that we, as a class, came up with:
- First, dispute the credit report error online through each of the three national credit bureaus.
- If that doesn’t work, call the company using the phone number listed on the credit report. Attempt to correct the problem directly with the title loan company’s representative.
- If these attempts fail, try looking up the company on the state’s Secretary of State’s business entity search website. The business listing should include, even if the company has gone out of business, an owner or board member to contact (likely a mailing address). Make contact with a request for information on how to address accounting errors.
These same suggestions apply to similar situations involving other defunct creditors listed on one’s credit report, including, for example, debt collectors, banks and credit unions.
Do You Have Questions About How You Can Improve Your Credit Report and Score?
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