Difference between revisions of "Improve Your Credit Score"
(importing article from wikihow) |
m (Text replacement - "[[Category: C" to "[[Category:C") |
||
| (5 intermediate revisions by the same user not shown) | |||
| Line 1: | Line 1: | ||
| − | + | Credit reports are used by banks, credit card issuers and automobile dealerships to help them determine whether or not you are a good risk and if you are ''likely'' to repay any loan taken out. Also, many potential employers and landlords check your credit score to find out about your past credit history. There are some very simple steps you can take to raise your credit rating, as well as many things you can do to avoid having your credit score decline in the future. | |
''Note: This article applies to the United States. While some of the information here is relevant for other jurisdictions, check with your relevant local sources to verify first.'' | ''Note: This article applies to the United States. While some of the information here is relevant for other jurisdictions, check with your relevant local sources to verify first.'' | ||
[[Category:Credit and Debt]] | [[Category:Credit and Debt]] | ||
| Line 5: | Line 5: | ||
== Steps == | == Steps == | ||
===Understanding Your Credit Score=== | ===Understanding Your Credit Score=== | ||
| − | #Learn how your credit score is calculated. There are three national credit bureaus TransUnion, Equifax and Experian that calculate your credit score, and your score can differ depending on the agency, as they may have differing information about your credit history.<ref>http://www.consumerfinance.gov/askcfpb/319/how-does-my-credit-score-affect-my-ability-to-get-a-mortgage-loan.html</ref> There are five major components to your credit score. Each of them is weighted differently.<ref>http://www.investopedia.com/articles/pf/10/credit-score-factors.asp</ref> | + | #Learn how your credit score is calculated. There are three national credit bureaus TransUnion, Equifax and Experian that calculate your credit score, and your score can differ depending on the agency, as they may have differing information about your credit history.<ref name="rf1">http://www.consumerfinance.gov/askcfpb/319/how-does-my-credit-score-affect-my-ability-to-get-a-mortgage-loan.html</ref> There are five major components to your credit score. Each of them is weighted differently.<ref name="rf2">http://www.investopedia.com/articles/pf/10/credit-score-factors.asp</ref> |
#*Payment history (35%) — The most important component of your credit score is your payment history. Do you pay your bills on time? Do you have a history of late payments? If so, how late? Have you ever been turned over to collections? You can expect that late payments will deduct points from your score. | #*Payment history (35%) — The most important component of your credit score is your payment history. Do you pay your bills on time? Do you have a history of late payments? If so, how late? Have you ever been turned over to collections? You can expect that late payments will deduct points from your score. | ||
#*Amounts owed (30%) — What's your overall debt load? If you've taken on too much debt, then your score could suffer. | #*Amounts owed (30%) — What's your overall debt load? If you've taken on too much debt, then your score could suffer. | ||
| Line 11: | Line 11: | ||
#*New Credit (10%) — If you've just taken out a bunch of new loans and/or opened credit card accounts recently, your score is going to take a hit. | #*New Credit (10%) — If you've just taken out a bunch of new loans and/or opened credit card accounts recently, your score is going to take a hit. | ||
#*Types of credit (10%) — A healthy mix of debt (a mortgage, a credit card, and a car loan) is viewed a little more favorably than debt consisting entirely of credit cards. However, you don't want to open a new credit account just to have "balance." Instead, focus on the other components of your score. | #*Types of credit (10%) — A healthy mix of debt (a mortgage, a credit card, and a car loan) is viewed a little more favorably than debt consisting entirely of credit cards. However, you don't want to open a new credit account just to have "balance." Instead, focus on the other components of your score. | ||
| − | #Know how your credit score influences loans. When you are looking to take out a loan, perhaps for a mortgage or to buy a car, lenders are going to look at your credit score to help them determine if you are a good risk<ref>http://www.myfico.com/CreditEducation/How-Lenders-Use-FICO-Scores.aspx</ref> — meaning, you will pay back the loan. They will also use your credit score to help them determine the the interest rate on a loan. If you have a high credit score, you will likely qualify for lower interest rates.<Ref>http://www.consumerfinance.gov/askcfpb/319/how-does-my-credit-score-affect-my-ability-to-get-a-mortgage-loan.html</ref> A low score may mean a higher interest rate, or even being denied a loan. | + | #Know how your credit score influences loans. When you are looking to take out a loan, perhaps for a mortgage or to buy a car, lenders are going to look at your credit score to help them determine if you are a good risk<ref name="rf3">http://www.myfico.com/CreditEducation/How-Lenders-Use-FICO-Scores.aspx</ref> — meaning, you will pay back the loan. They will also use your credit score to help them determine the the interest rate on a loan. If you have a high credit score, you will likely qualify for lower interest rates.<Ref>http://www.consumerfinance.gov/askcfpb/319/how-does-my-credit-score-affect-my-ability-to-get-a-mortgage-loan.html</ref> A low score may mean a higher interest rate, or even being denied a loan. |
| − | #*Different lenders may use industry-specific scores. For instance, a credit card company may look at your FICO Bankcard Score, or an auto lender may order your FICO Auto Score, to give them a more specific look at your relevant credit information.<ref>http://www.myfico.com/CreditEducation/FICO-Score-Versions.aspx</ref> When applying for a personal loan, student loan, or mortgage, your credit score from all three bureaus may be examined.<ref | + | #*Different lenders may use industry-specific scores. For instance, a credit card company may look at your FICO Bankcard Score, or an auto lender may order your FICO Auto Score, to give them a more specific look at your relevant credit information.<ref name="rf4">http://www.myfico.com/CreditEducation/FICO-Score-Versions.aspx</ref> When applying for a personal loan, student loan, or mortgage, your credit score from all three bureaus may be examined.<ref name="rf4" /> |
===Studying Your Current Report and Fixing Errors=== | ===Studying Your Current Report and Fixing Errors=== | ||
| − | #Request your credit report and score from the three national credit bureaus. The contact information for [https://www.transunion.com/ TransUnion], [http://www.equifax.com/home/en_us Equifax] and [http://www.experian.com/ Experian] can be obtained online at their websites or from the Credit Info Center. The first thing you need to do is know where you are now, in order to fix any errors and determine where you need to improve.<ref>http://www.creditinfocenter.com/creditreports/CreditBureauContactInfohtm.shtml</ref> | + | #Request your credit report and score from the three national credit bureaus. The contact information for [https://www.transunion.com/ TransUnion], [http://www.equifax.com/home/en_us Equifax] and [http://www.experian.com/ Experian] can be obtained online at their websites or from the Credit Info Center. The first thing you need to do is know where you are now, in order to fix any errors and determine where you need to improve.<ref name="rf5">http://www.creditinfocenter.com/creditreports/CreditBureauContactInfohtm.shtml</ref> |
#*The information on the credit report is the data used to develop the credit score, so ensuring the information is correct is critical. | #*The information on the credit report is the data used to develop the credit score, so ensuring the information is correct is critical. | ||
| − | #* You can obtain one free credit report per year from each of the three agencies. Therefore you should request one report every four months so you can continually monitor your reports. [[Get Your Credit Report for Free|Your credit history is free]] but you may have to pay a small cost to get your actual credit score. Some banks and credit unions offer credit score information to their customers for free.<ref>http://www.myfico.com/CreditEducation/CreditScores.aspx</ref> | + | #* You can obtain one free credit report per year from each of the three agencies. Therefore you should request one report every four months so you can continually monitor your reports. [[Get Your Credit Report for Free|Your credit history is free]] but you may have to pay a small cost to get your actual credit score. Some banks and credit unions offer credit score information to their customers for free.<ref name="rf6">http://www.myfico.com/CreditEducation/CreditScores.aspx</ref> |
#* Many services that advertise that they will give you a free credit report or score are scams. They will stand there between you and the credit companies in order to harvest your data and then sell the data to marketing firms. | #* Many services that advertise that they will give you a free credit report or score are scams. They will stand there between you and the credit companies in order to harvest your data and then sell the data to marketing firms. | ||
| − | #* You're considered to be a poor risk if you have a credit score under 620.<ref>http://www.howcast.com/videos/125631-How-To-Strengthen-Your-Credit-Score</ref> | + | #* You're considered to be a poor risk if you have a credit score under 620.<ref name="rf7">http://www.howcast.com/videos/125631-How-To-Strengthen-Your-Credit-Score</ref> |
#[[Dispute Items on a Credit Report|Dispute items on your credit report]] that are incorrect. You will have better luck if you deal directly with the vendor who reported the incorrect information than depending on the credit bureaus to take your word for it. For example, perhaps you paid off a car loan but this was never reported to the bureaus as paid by your bank. The bank should then report the correction. | #[[Dispute Items on a Credit Report|Dispute items on your credit report]] that are incorrect. You will have better luck if you deal directly with the vendor who reported the incorrect information than depending on the credit bureaus to take your word for it. For example, perhaps you paid off a car loan but this was never reported to the bureaus as paid by your bank. The bank should then report the correction. | ||
| − | #* For other types of reporting errors such as fraudulent use of your identity, provide all the forms of proof that you have to the bureaus, such as cancelled checks, stamped invoices, police reports, etc. Put everything in writing and follow up at least once per week by phone with the bureaus until the mistakes are corrected on your report.<ref>https://www.annualcreditreport.com/index.action</ref> | + | #* For other types of reporting errors such as fraudulent use of your identity, provide all the forms of proof that you have to the bureaus, such as cancelled checks, stamped invoices, police reports, etc. Put everything in writing and follow up at least once per week by phone with the bureaus until the mistakes are corrected on your report.<ref name="rf8">https://www.annualcreditreport.com/index.action</ref> |
#* If you have some late payments showing on your credit report, these can really hurt your score. Collections, judgments and tax liens are devastating. You can try to negotiate with the entity that reported the collections, etc., for removal of such negative notations. | #* If you have some late payments showing on your credit report, these can really hurt your score. Collections, judgments and tax liens are devastating. You can try to negotiate with the entity that reported the collections, etc., for removal of such negative notations. | ||
#* Be aware that unlike what you may have heard or read elsewhere, getting negative information removed from your report is not an easy thing to do. Be persistent, factual and patient. | #* Be aware that unlike what you may have heard or read elsewhere, getting negative information removed from your report is not an easy thing to do. Be persistent, factual and patient. | ||
===Repairing a Poor Credit Score=== | ===Repairing a Poor Credit Score=== | ||
| − | #[[Create a Budget|Make a budget and stick to it]]. Creating a budget, either written or online, will help you get rid of your debt, improve your credit, and stay out of debt. While the credit bureaus won't see your budget, it will see the good results of your sticking to it.<ref>http://www.consumercredit.com/financial-education/budgeting.aspx</ref> | + | #[[Create a Budget|Make a budget and stick to it]]. Creating a budget, either written or online, will help you get rid of your debt, improve your credit, and stay out of debt. While the credit bureaus won't see your budget, it will see the good results of your sticking to it.<ref name="rf9">http://www.consumercredit.com/financial-education/budgeting.aspx</ref> |
#[[Get Out of Debt|Get out of debt]]. Getting rid of as much of your debt as you can is the first and most important step in improving your credit. Make a list of all debts and [[Prioritize Your Debts|prioritize which ones to pay off first]]. | #[[Get Out of Debt|Get out of debt]]. Getting rid of as much of your debt as you can is the first and most important step in improving your credit. Make a list of all debts and [[Prioritize Your Debts|prioritize which ones to pay off first]]. | ||
#* Try the avalanche technique. To pay your debts off as quickly as possible, start by paying off the debt with the highest interest rate first. Continue to pay off your debts, working your way down from the highest interest rates to the lowest. | #* Try the avalanche technique. To pay your debts off as quickly as possible, start by paying off the debt with the highest interest rate first. Continue to pay off your debts, working your way down from the highest interest rates to the lowest. | ||
| Line 36: | Line 36: | ||
#Build up different types of credit. A "healthy mix" of different types of credit builds up your score better than simply one type. For example, you might have a car loan, mortgage or line of credit and a credit card. | #Build up different types of credit. A "healthy mix" of different types of credit builds up your score better than simply one type. For example, you might have a car loan, mortgage or line of credit and a credit card. | ||
#* Let's say two people have $10,000 total in total credit each, and both are making timely payments. One has only one credit card. The other has a credit card, a car payment and a bank line of credit (overdraft protection). The second person's score will often be much better than the first one's. | #* Let's say two people have $10,000 total in total credit each, and both are making timely payments. One has only one credit card. The other has a credit card, a car payment and a bank line of credit (overdraft protection). The second person's score will often be much better than the first one's. | ||
| − | #Meet with a credit counseling agency. If you need any kind of advice to help get out of debt and improve your credit history, find a find a low or zero cost agency to help you. There might be free services available from your employer, military base, credit union, housing authority, or a local branch of the U.S. Cooperative Extension.<ref>http://www.justice.gov/ust/list-credit-counseling-agencies-approved-pursuant-11-usc-111</ref> | + | #Meet with a credit counseling agency. If you need any kind of advice to help get out of debt and improve your credit history, find a find a low or zero cost agency to help you. There might be free services available from your employer, military base, credit union, housing authority, or a local branch of the U.S. Cooperative Extension.<ref name="rf10">http://www.justice.gov/ust/list-credit-counseling-agencies-approved-pursuant-11-usc-111</ref> |
#* Beware of for-profit companies that charge you a fee and promise to have all or most of your debts forgiven. Even if they pull it off, your credit score will plummet. | #* Beware of for-profit companies that charge you a fee and promise to have all or most of your debts forgiven. Even if they pull it off, your credit score will plummet. | ||
