Improving your credit score

Check out our previous article, What makes up my credit score?, to learn more about your credit score.

A high credit score can have a positive impact on many areas of your life. Not only can it affect the interest rate on your mortgage or auto loan, but it can also affect your ability to be approved for credit cards and other loans. If your credit score isn’t quite where you’d like it to be, there are ways to improve it over time. Consider these tips, while keeping in mind that some tips might make more sense for your financial situation than others.

Order your credit reports

You can obtain a copy of your credit report from each of the three main credit bureaus (TransUnion, Experian and Equifax). You’re entitled to one free copy of your credit report every 12 months from each of these three credit reporting companies. There are slight differences in each of the main credit bureaus, so you should be sure to review your report from each of them.

Review your credit reports for any errors

Your credit score is based on the data from your credit reports. According to a study conducted by the Federal Trade Commission (FTC), about one in four consumers have errors on their credit reports that might affect their credit scores. Howard Shelanski, Director of the FTC’s Bureau of Economics, said the following: “It’s clear that consumers should check their credit reports regularly. If they don’t, they are potentially putting their pocketbooks at risk.”

When reviewing your credit reports for errors, watch for the following:

  • Payments that have been incorrectly reported late or unpaid
  • Accounts that aren’t yours (this could be a sign of identity theft, as someone may be opening lines of credit in your name)
  • Outdated information
  • Information that is not yours (confused names, addresses, etc.)

Dispute any errors

Under the Fair Credit Reporting Act (FCRA), credit bureaus are responsible for correcting inaccurate or incomplete information in your credit report. If you find any potential errors on your credit report, you can follow the steps found on the FTC website to dispute the errors.

 Build a good credit history

At a base level, your credit score is a reflection of your credit payments over time. Your payment history impacts your credit score more than any other factor (it makes up about 35% of your score). Paying your bills on time is an important contributor to a good credit history, and ultimately, a good credit score. Even if you only owe a small amount, it’s important to make payments on time. Keep the following in mind as you strive to build a good credit history:

  • Delinquent payments and collections can have a major negative impact on your score.
  • Keep balances low on credit cards and other “revolving” lines of credit.
  • Apply for and open new credit accounts only as needed.

Be consistent (patient)

Unfortunately, there is no quick fix for bad credit scores. It takes time to rebuild your credit history, and ultimately, have those changes show on your credit score. Focus on paying your bills in full and on time, and use credit responsibly. Over time, your score will begin to reflect smart spending behavior.

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