Many people wonder what they can do to improve their credit score. Since a credit score increases or decreases depending on how finances are handled, improving a low credit score will take diligence and time.
A credit score is determined by the information contained on a credit report and normally ranges from 300 – 850. The creditors and lenders use the credit score to decide if they will extend credit or a loan and at what interest rate. Credit scores can also affect whether or not a person can buy items like a cell phone and how much someone actually pays for different types insurance.
The first step to improving a credit score is being aware of what information is actually contained on a credit report. Because of the Fair and Accurate Credit Transactions Act (FACTA), which is an amendment to the Fair Credit Reporting Act (FCRA), everyone is entitled to receive one free credit report every 12 months from each of the nationwide consumer credit reporting companies. This free credit report can be requested through AnnualCreditReport.com.
The credit reporting companies are Equifax, Experian and TransUnion.
Equifax: 1-877-576-5734; www.alerts.equifax.com
Experian: 1-888-397-3742; www.experian.com/fraud
TransUnion: 1-800-680-7289; www.transunion.com
If errors are found on any of the reports, a person must contact that reporting agency directly to correct those errors because inaccuracies can have a negative impact on a credit score. Here are some tips on raising a credit score once any errors have been corrected:
Consistently paying bills on time can have a dramatic effect on a credit score, but it does take time. It is so important not to be late on a bill, even by a day or two, if a person is trying to raise his/her credit score. This establishes that a person is responsible financially, so the creditor/lender will feel more comfortable about the fact that they will receive their payments in a timely manner.
Keeping credit balances well below the actual credit limit will also have a positive effect on a credit score. Experts recommend staying at 25% or below of the total credit limit. If a credit card is maxed out, the score will be impacted negatively.
Lenders like to see that a person can manage different kinds of debt. Having a variety of major credit cards, possibly a store credit card and a house or a car loan can help a credit score if the bills are paid in full and on time.
Limiting the amount of new accounts that are opened and preventing unnecessary credit checks or inquiries can have a positive effect, as well.
Improving a poor credit history will take time, so be leery of any companies who offer to quickly repair a credit report for a fee. Some credit repair organizations engage in illegal or deceptive practices.
The Federal Trade Commission offers facts for consumers regarding credit repair here: http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre13.shtm.
More information on the Fair Credit Reporting Act (FCRA) and the Fair and Accurate Credit Transactions Act (FACTA) can be found on the Federal Trade Commission’s website at: http://www.ftc.gov/os/statutes/fcrajump.shtm and http://www.ftc.gov/opa/2005/06/disposal.shtm.
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