Request a Copy of Your Credit Report
The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies – Equifax, Experian, and TransUnion – to provide you with a free copy of your credit report, at your request, once every 12 months. Click here to visit Annual Credit Report.com. The Fair Credit Billing Act requires written communication to resolve errors on credit billing statements, including charges that you have not made. Send your letter by certified mail, and request a return receipt to document what the credit bureau received and when. Request a “fraud alert” for your file and a victim’s statement asking creditors to call you before opening new accounts or changing your existing ones. In a few months, order new copies of your report to verify your corrections and changes.
What Is Credit?
A credit score is a sum used by lenders as an indicator of how likely you are to repay your loans. Your credit score is generated by a mathematical formula utilizing the data from your TransUnion, Equifax or Experian credit reports. Lenders have been using credit scores as part of the lending decision for more than 20 years.
What factors influence my credit score?
Various factors determine your credit score, including the following:
- Payment History
- Outstanding debt
- Length of credit history
- Severity and frequency of derogatory credit information such as bankruptcies, charge-offs, and collections
- The amount of credit used compared to the credit available
Five Steps to Improving Your Credit Score
- Be punctual - Pay your bills on time. Late payments, collections, and bankruptcies have the greatest negative impact on your credit score.
- Check your credit report regularly and take the necessary steps to remove inaccuracies - Don't let your credit suffer due to inaccurate information. If you find an inaccuracy on your credit report, contact the creditor associated with the account or the credit reporting agency to correct it immediately.
- Watch your debt - Keep your account balances below 50% of your available credit. For instance, if you have a credit card with a $1,000 limit, you should try to keep the balance owed below $500.
- Give yourself time - Time is one of the most significant factors in improving your credit score. Establish a long history of paying your bills on time and using credit responsibly. Consider keeping the oldest account on your credit report open in order to lengthen your period of active credit use.
- Avoid excessive inquiries - A large number of credit inquiries over a short period of time may be interpreted as a sign that you are opening numerous credit accounts due to financial difficulties or overextending yourself by taking on more debt than you can easily repay.
Common Misconceptions About Credit
- Your score will drop if you check your credit - Fortunately, this one is definitely not true. Checking your own report and score is counted as a "soft inquiry" and doesn't harm your credit at all. Only "hard inquiries" from a lender or creditor, made when you apply for credit, can bring your credit score down a few points. Worried about damaging your credit while shopping around for a loan? Multiple inquiries for the same purpose within a short amount of time (a few weeks) are grouped together into a less damaging period of inquiry.
- Closing old accounts will improve your credit score - Many people advocate for closing old and inactive accounts as a way to improve your credit. In most cases, closing accounts will actually have the opposite effect. Canceling old credit accounts can lower your credit score by making your credit history appear shorter. Think twice before closing the oldest account on your credit report. If you want to reduce your levels of available credit, ask for your credit limits to be reduced or close newer accounts instead.
- Once you pay off a negative record, it is removed from your credit report - Negative records such as collection accounts, bankruptcies and charge-offs will remain on your credit report for 7-10 years after they are first posted. Paying off the account before the end of the set term doesn't remove it from your credit report, but will cause the account to be marked as "paid." It is still a good idea to pay your debts; it can improve your credit score, but the major improvement will come when the record expires.
- Being a co-signer doesn't make you responsible for the account - When you open a joint account, co-sign for a loan, or become an authorized user on someone's credit card, you are taking on legal responsibility for the account. Any activity on these shared accounts, good or bad, will show up on both people's credit reports. If you co-sign for a friend's auto loan and he or she does not make the payments, your credit profile will also be hurt. The only way to stop this is to refinance the loan or to have the creditor officially remove you from the account.
- Paying off a debt will add 50 points to your credit score - Your credit score is calculated using a complex algorithm that takes into account hundreds of factors and values. It is very hard to predict how many points you can gain by changing one factor. For a person with a high credit score, just one late payment can cause a significant drop. If a person has a low credit score, it may not cause a large drop at all. There is no magical way to improve your credit score; just keep paying your bills on time, reducing your debts, and removing negative inaccuracies from your credit report. Time and good financial behavior are the two most important factors contributing to your credit score.