It is no big secret that your entire financial life depends on your credit score and credit history. If your score is low, you are going to have big problems getting any type of credit. The only way to get back on the right track is to raise your credit score and take the necessary steps to improve your financial affairs. How do you get a low credit score? Well, there are many different ways and reasons that your credit score could be suffering.
This might include failure to pay bills on time, defaulting on payments, bankruptcy, taking on too much credit at once, and the list can go on and on. Judgments against you could also lower your credit score. A low credit score does so much more than just preventing you from getting loan or credit. It can also prevent you from renting an apartment or home, as well as getting a job.
For the process of increasing your credit score, your first step would be to get copies of your credit reports from each of the three major credit reporting agencies and go over them with a fine tooth comb. Federal law says that you can get a free copy of your report once a year, so feel free to take advantage of this. What you will likely discover is that even though all the information on your report may be correct, chances are very high that you will find one or more errors. If you do not get these errors corrected, they will never be corrected since you are the only one who can get them fixed.
Errors are introduced into your credit report in a variety of ways. Account numbers get transposed, there is human error and clerical error, and also computer error. If you see an account you do not recognize, this may be the sign of identity theft. Having all these errors on your credit report will cause your credit score to be calculated lower. Endeavor to get those errors corrected, which is not all that difficult.
The process of getting the errors fixed is not hard but is tedious. Doing nothing with the errors should not be an option since they are causing your credit score to be lower than it should be. You are the only one who can report the errors and get them corrected and there are also laws in place to help with this.
In the process of error correction, you may need to get proof. For example, the report may indicate an account that is not paid off but you know for a fact that it is. Frequently the original creditor will provide the proof you need, but most times you simply need to dispute the error, since the burden of proof is on the creditor.
You need to send a letter to each credit bureau that is reporting the error, identify what is being reported incorrectly and tell them how it should be reported. Keep a copy of what you send to them. The credit bureaus have 30 days to complete their investigation and let you know what they found. If you include proof with your claim, this will aid them in getting the error corrected.
When you raise your credit score, you will find that things get so much better. Now you may be able to receive a loan, a credit card, or other forms of credit. You will also find that your interest rates are lowered and it becomes easier to rent a home or buy a home. There are many benefits it is time to start raising your credit score today.
Credit scores are tantamount to one's purchasing and borrowing power. Buying a new home, qualifying for a low APR credit card to shopping for a small business loan all depend on a consumer's credit history. A low credit score identifies that a consumer may be overextended in bills, is unable to manage accounts or has a poor repayment behavior.
What is a credit score?
The credit score is prevalently referred to as a FICO score or a numerical portfolio of a consumer's borrowing and bill repayment behavior. The information contained in a credit report is very similar to a report card. FICO credit scores range between 300 and 850. Credit scores above 850 are extraordinary. While a credit score of 300 is deemed exceptionally unusual, FICO scores generally do not fall under 500.
Annually, billions of credit approvals are determined based upon a consumer's FICO score. While credit scores represent personal financial records of payment, a FICO scores are used to make other important lending and financing decisions:
* The dollar amount of a credit line or loan
* Interest rate
* Pre-approval of credit cards
* The authorization of a cash advances
* The type of cell phone service (pre-paid or standard)
* The approval to rent an apartment
Because credit scores use the last two-year's of a consumer's credit card, borrowing and repayment history, everyone has the power to improve their score. In order to understand how a credit score is assessed, it's important to understand which components of one's credit history are used to calculate a FICO score:
* Payment History 35%
* Availability of credit and usage 30%
* Duration of open accounts with creditors 15%
* Credit inquiries (the number of applied credit cards) 10%
* Composition of credit file ? bankcard versus installment debt 10%
Use the following steps to raise your credit score
1. Obtain a copy of your credit score report from one of the three major credit bureau agencies: Equifax, TransUnion or Experian.
2. Thoroughly review your credit score for errors or outdated information. Quite often, certain lending institutions are not due diligent on updating old information. Contact specific companies to request contest errors and request credit corrections.
3. When reviewing your credit report, use the above listed areas of evaluation to help raise your credit score.
4. Because outstanding debt may taint a FICO score, try to pay-off balances on both revolving credit cards as well as other financial accounts. For the sake of appearances and the credit score, target bankcard debt to 60 percent with 30 percent towards installment debt. (If you plan to obtain mortgage approval, prove your ability to repay debt by paying down loans with installments ? as much as possible).
5. Closing unused accounts is a negative strategy to raising one's credit score. Factually, fewer open accounts with the same amount of debt ultimately reduces a credit score. For example, a credit line of $20,000 worth of debt with $10,000 worth of available credit represents a 50% debt ratio. By closing a credit card in good standing with a zero balance and $5000 credit line, a consumer would be raising their debt ratio to 67 percent and lowering their credit score. Target outstanding debt to account for only 20 to 30 percent of your available credit line.
6. Instead of opening up a number of credit cards to raise a credit score, find a credit card with a low APR to consolidate onto one credit card. However, caution is advised on people with a short credit life in opening a number of credit cards because it can ultimately lower a person's credit score, accounts for 15 percent of a person's credit information.
7. Make frequent payments. Credit scores maintain a record of how often or late a person remits payment. Since frequent payments account for 35 percent of a person's credit history, the strategy can be quite effective in raising one's credit score.
Both Jay Anderson & Edward Vegliante are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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