Money Sense Tips

Our credit scores play a big role in determining the results when we apply for a credit card or loan. A good credit score can help us get the credit we need at the best possible rate. A poor credit score could result in a higher interest rate or denial of credit. It is in our best interest to make sure our credit scores are as high as possible.

The credit bureaus keep the exact method for figuring credit scores a mystery. But there are a number of factors that are known to impact our credit scores. Here are five things you can do to improve yours:

1. Keep an eye on the information contained in your credit report. Sometimes the bureaus make mistakes, and identity theft can also wreak havoc on one’s credit report and score. Federal law requires each credit bureau to provide one free report per year to any consumer who requests it online, by phone or in writing, and we are also entitled to a free report if we are denied credit. So check your report regularly, and if you find any inaccuracies, dispute them in writing.

2. Always pay your bills on time. Even if you’ve made payments late in the past, keeping current bills paid on schedule will help raise your credit score. The longer your history of keeping payments current, the more it will improve your credit score.

3. Keep credit card balances low. Just because you have a $10,000 credit limit, that doesn’t mean you should use it all. A good rule of thumb is to keep each credit card balance at or below 25 percent of the limit. Even if you have a perfect payment history, carrying too large of a balance can adversely affect your credit score.

4. Avoid opening too many accounts in a short time frame. This is especially important if you have a short credit history, but it also applies if you have well-established credit. Opening lots of accounts in rapid succession raises concerns that you could get in over your head, hence lowering your credit score.

5. If you pay off an account, keep it open. This will help by lengthening your credit history. It can also reduce your balance to credit limit ratio, unless you transferred the balance to another card.

Improving your credit score is not as difficult as you might think. A few simple adjustments can really make a difference, but it does take some time. If you are planning to apply for credit, start working on your credit score a few months ahead of time. This will increase your chances of getting the loan or credit card, and it could save you lots of money on interest.

In some cases, bad credit is a result of irresponsible money management. But it often occurs because of unexpected financial hardship. One day you might have all of your bills current, and the next you could become disabled or lose your job. And if you fall behind on your debts, it will wreak havoc on your credit rating.

Credit repair agencies claim that they can remove bad entries from your credit report. But did you know that you can often have them removed yourself at a much lower cost? There are two methods by which you may be able to get negative entries removed from your report.

Option #1: File a Dispute with the Credit Bureaus

The Fair Credit Reporting Act (FCRA) requires credit bureaus to investigate any item on your credit report that you dispute. If the information is found to be false, inaccurate or unverifiable, it must be corrected or removed from your report. The bureaus have 30 days from the time they receive notice of the dispute to complete their investigation.

If there is any inaccurate information on your credit report, a dispute is certainly in order. But some people have had luck disputing items that were in fact accurate, including judgments, collections accounts and repossessions. If such items are not verified by the creditor (or the court in the case of judgments) within the time limit for investigation, they must be removed.

If you decide to dispute a legitimate entry, simply write a letter to each of the credit bureaus stating that you dispute that entry. No explanation is required. But keep in mind that if the entry is verified, it will remain on your report. And if the creditor verifies the information after the 30-day time limit, the credit bureau may reinstate the entry as long as they notify you at least 5 days before doing so.

Option #2: Negotiate with Creditors

Dealing with creditors can be intimidating, especially if you’re not on good terms with them. But speaking to your creditors directly may help you get negative information removed from your credit report.

If you only have a late payment or two on your account, a creditor might be willing to remove the derogatory information once you’ve resumed a regular payment schedule. If you’ve experienced repossession or had an account turned over to collections, payment in full might persuade them to remove the negative entry. It sounds like a long shot, but you never know until you ask. Requests to remove late payment information may be made after you’ve brought you account current. But if you’re hoping for removal of a repossession or collection action, it’s best to negotiate a deal before you pay anything.

If You Can’t Get the Bad Entries Removed

There is no guarantee that disputing information on your credit report or negotiating with creditors will get negative items removed from your record. If it doesn’t, the best thing you can do is try to build up some positive information on your report.

The first thing you need to do when trying to rebuild good credit is bring past due accounts current. Try to work out a deal with your creditors to accomplish this, or talk to a credit counseling agency. But don’t miss payments on current accounts to put money toward those that are past due. If it comes down to paying one or the other, keep the current account current.

Once you’ve brought all of your accounts current, put a priority on keeping them that way. Making your payments on schedule will raise your credit score, and with the passage of time, the good entries may outweigh the bad.