Figuring out how credit scoring works and understanding what your individual score means, is a big step towards improving your overall credit rating. As your credit information changes, so does your credit score. Negative information grows old and as it does, it becomes less important; improving your credit score does not happen overnight, |
it usually takes a year of good credit management (e.g.: paying on time, using credit cards wisely and looking out for your credit limits) Improving your credit score takes commitment and work. Here are some general tips that, if followed overtime, can help you improve your credit history and score.
First and foremost, get a copy of your credit report, knowing what is in your credit puts you in control, you need to find out what it is that you need to repair. You can obtain a copy of your credit report from any of the tree major credit reporting agencies: Equifax, Trans Union, and Experian. It is a good idea to get a copy from all three agencies or obtain a consolidated credit report, especially if you are thinking of buying a house or refinancing. Many mortgage companies will use data obtained from all three agencies when reviewing your credit history. Review your credit report thoroughly; make sure to correct any errors and incomplete information. By doing this, you are making sure that your credit history is accurate and that your credit score is correct. When reviewing your credit report, pay particular attention to the reason codes, so that you can improve them. Your credit score might be accompanied by a maximum of four reason codes which are alphanumeric codes set by FICO to understand how and why you received a particular score. Learning these codes is fundamental in the improvement of your score later on.
Make sure that all the information in your credit report is accurate and complete, if you had already paid off an account and it is still showing; check that the balance appears as zero. Look for these items in particular:
• Incomplete or wrong name, address or phone number
• Wrong social security number or birth date.
• Missing, wrong, or outdated employment information
• Incorrect marital status – showing single when married or vice versa
• Bankruptcies older than 10 years or not identified by the specific chapter of the bankruptcy code.
• Judgments or lawsuits older than seven years.
• Delinquent account older than seven years or that omits the date of the delinquency, paid tax liens older than seven years.
• Credit applications older than two years.
• Credit histories for someone with the same name or similar social security number.
• Premarital debts of your current spouse attributed to you.
• Lawsuits you were not involved in.
• Wrong account histories, such as a debt shown as past due when it was discharged in bankruptcy or a late payment note when you paid on time.
• Paid judgment, tax or other liens listed as unpaid.
• Closed accounts still listed as open.
• Accounts closed by you, that don’t indicate “closed by consumer”
• Incorrect aliases
Things to remember:
- Accounts paid off can still be showing on your report, but they must indicate that you’ve paid them off.
- Information about accounts you share, or used to share, with a spouse will be listed in both your reports.
- Even if you had paid off a past-due account, the old negative information will remain on your credit report for up to seven years after you have finished reviewing your report and you have collected all of the wrongful data, fill out the request for investigation that came with your credit report or type a letter describing every problem.
2. Correct Errors on Your Credit Report.
Make sure that all the information in your credit report is accurate and complete, if you had already paid off an account and it is still showing; check that the balance appears as zero. Look for these items in particular:
• Incomplete or wrong name, address or phone number
• Wrong social security number or birth date.
• Missing, wrong, or outdated employment information
• Incorrect marital status – showing single when married or vice versa
• Bankruptcies older than 10 years or not identified by the specific chapter of the bankruptcy code.
• Judgments or lawsuits older than seven years.
• Delinquent account older than seven years or that omits the date of the delinquency, paid tax liens older than seven years.
• Credit applications older than two years.
• Credit histories for someone with the same name or similar social security number.
• Premarital debts of your current spouse attributed to you.
• Lawsuits you were not involved in.
• Wrong account histories, such as a debt shown as past due when it was discharged in bankruptcy or a late payment note when you paid on time.
• Paid judgment, tax or other liens listed as unpaid.
• Closed accounts still listed as open.
• Accounts closed by you, that don’t indicate “closed by consumer”
• Incorrect aliases
- Date of birth
- Current residence (rent or own)
- Past residence – if less than two years in current place
- Current employment – company name, address and job title
- Past employment – if less than two years in current job Since credit reporting agencies aren’t required to add this information it might not be included in your credit report.
Every time your credit is accessed, for any reason (e.g.: credit card application, loan application, etc) it will be listed on your credit report as an inquiry. Having too many inquiries can be misconstrued as you shopping for credit and might appear that you are anticipating the need for many credit lines.
5. Close Unneeded Accounts:
When it comes to a potential lender or creditor, the less credit you have the less risk you will pose. Limiting your credit cards to two or four can give you a better credit score. If you have unused or unnecessary accounts open, close them. Cutting your credit cards and tossing them does not count as closing your accounts. The safest and surest way to close your credit card account is by sending a certified letter to the customer service department of the lender or issuer. Ask the lender or card issuer to close your account and report it to the credit bureaus as “closed by costumer.” The lender or card issuer should send you a confirmation letter in approximately 10 days. Be sure to follow up by calling the lender or card issuer to verify that your account has been closed and it has been reported properly to the credit bureaus. Lastly, get another copy of your credit report to confirm that it has been reported properly.
6. Build a Excellent Payment History:
Unfortunately there is not much you can do to remove late payment information; but by making your payments on time from now on can make a good impression. Negative information loses its strength with time; a late payment five years ago is looked at with less severity than a recent one.
7. Pay off Credit Cards:
Paying off your credit cards shows that you are using your credit wisely, try to maintain your credit limits and all outstanding balances down; using your credit conservatively is very important. 8. Keep your debt reasonable. In order to get a good credit score, you must maintain a 75% of available credit on all of your accounts. For example, if you have a $2000 credit limit, you should have a balance of no more than $1500.
8. Take Care of Collection Accounts.
Collection accounts must be paid and listed as paid on your credit report. Some collection agencies will negotiate a reduced settlement in order to get the debt paid, but there may be consequences.
9. Satisfy any Public Records:
Make sure all your public records, such as tax liens or judgments, are satisfied.
When your credit score is received by a lender, it usually includes “score reason codes” these scores explain why your score wasn’t higher. Reason codes can help you get an idea of where and how you should start improving your score.
Lenders are not required to tell you your credit score, however if you were turned down for a loan because your score is low; the lender must give you the reason for your low score. Your credit score can contain a maximum of four “Reason Codes” which explain the reason your score wasn’t higher. These codes are usually listed in order of impact on the score.
FICO reason codes show how many aspects of your credit report are used in a FICO score. Your four reason codes would be from this list:
• Amount owed on accounts is too high;
• Delinquency on accounts;
• Too few bank revolving accounts;
• Too many bank or national revolving accounts;
• Too many accounts with balances;
• Consumer finance accounts;
• Account payment history is too new to rate;
• Too many inquiries in last 12 months;
• Too many accounts opened in last 12 months;
• Proportion of balances to credit limits is too high;
• Amount owed on revolving accounts is too high;
• Length of revolving credit history is too short;
• Time since delinquent is too recent or unknown;
• Length of credit history is too short;
• Lack of recent bank revolving account information