How to Improve your Credit Score

Now that you have a basic understanding of what a credit score is and how it’s calculated, we can begin to look into maintaining and/or improving your score. Don’t be overwhelmed, it can be a time consuming and stressful process but as stated earlier, in the long run it can save you A LOT of $$$ and WILL improve your financial wellbeing!

1. Pay your bills on Time (If Possible)

I realize that sometimes this is easier said than done. Emergencies happen. LIFE happens. Many lenders realize this and offer differing types of hardship plans whereas you can work your way back to a positive status. ALWAYS check with your lender before discontinuing your payments altogether.

**2. Make sure to actively check your scores and reports to keep up with any errors that may arise.

Credit Karma updates AT LEAST every 7 days, so check it EVERY 7 DAYS. The quicker you can catch a problem, the quicker you can begin working to resolve it. This is in my opinion one of the MOST important steps in raising and maintaining your score.

3. Lower your credit utilization as much as possible.

Most experts recommend keeping your overall credit card utilization below 30%. Lower utilization can let lenders know that you are able to responsibly use your available credit without relying too heavily on it and may lead to higher credit scores!

4. DO NOT CLOSE OLD ACCOUNTS! (Even if not in use)

Closing accounts that you no longer use can affect 2 of the 5 credit score factors discussed earlier! These factors include utilization AND length of credit history. This will result in a likely credit score drop in many circumstances. The only situation where I would suggest closing accounts is if you feel that the urge to make purchases on the card is too great.

5. Authorized User Tradelines

In case you aren’t familiar with what tradelines are and how they can help you improve your credit score, here are the basics:

According to experian.com a tradeline is an entry by a credit grantor to a consumer’s credit history maintained by a credit reporting agency. A tradeline describes the consumer’s account status and activity. Tradeline information includes names of companies where the applicant has accounts, dates accounts were opened, credit limits, types of accounts, balances owed and payment histories.

An authorized user is someone who is given access to an account as a user, but is not responsible for the balance.

The term “Authorized User Tradelines” just means credit card accounts in which someone is added onto as an authorized user.

Tradelines have been used for many years as a credit enhancement technique. A person can pay to be added as an authorized user for the sole purpose of having that account’s history added to their credit report. As long as the account is in good standing, this can have a drastic effect on the user’s credit score.

How Long do Negative Items Stay on Your Credit?

Most of us have experienced some sort of financial hardships in our lives right? I know I have! These temporary situations can end up wreaking havoc on your credit score.

Some examples of negative information include delinquencies, foreclosures, bankruptcies, unpaid judgements, and charge-offs to name a few. The majority of negative items stay on your report for a period of seven years. Bankruptcy is the exception to this rule, staying on for up to 10 years and knocking 130 to 150 points off your credit score, according to FICO.

Also worth mentioning are hard credit inquiries, otherwise known as a “hard pull”. These are normally generated when you apply for a credit card, auto loan, mortgage, personal loan or other lines of credit and stay on your report for 2 years. Such inquiries aren’t inherently negative information but can deduct a few points from your credit score. It is likely that inquiries of a similar nature such as mortgage and/or auto loans made within a one to two week period will be combined so that they only count as one inquiry. Make sure to keep this in mind when car or house shopping so as to lessen the negative effect on your credit scores!

Around 25% of U.S. consumers found errors that could affect their credit scores in one of their credit reports, according to a 2012 study by the Federal Trade Commission. Once you identify an error on your credit reports, the Consumer Financial Protection Bureau recommends that you contact the credit bureaus that produced the reports with the error. Equifax, TransUnion and Experian, the three major credit bureaus, let you dispute inaccuracies on their respective consumer credit reports online or by mail. The addresses for disputes are as follows:

Equifax

P.O. Box 740256

Atlanta, GA 30374-0256

Experian

P.O. Box 9701

Allen, TX 75013

TransUnion

P.O. Box 2000

Chester, PA 19016

You’ll find sample letters to dispute credit report information with the credit bureaus on the CFPB website. I suggest sending the letters via Certified Mail to ensure receipt.

Errors on credit reports can include the following:

• Identity-related errors such as a misspelled name, wrong phone number or address, or your information incorrectly merged with another person’s credit record

• Incorrectly reported accounts, such as a closed account reported as open or an account wrongly reported as delinquent

• Account balance and credit limit errors

• Reinsertion of inaccurate information after it’s corrected

The CFPB also recommends that you contact the company that provided the information to the credit bureau (credit furnisher) such as a bank or credit card issuer. You may also send a dispute letter to them.

Whichever method you use to dispute errors on your credit report, be prepared to wait up to 45 days for the credit bureau or furnisher to investigate and respond.

Once the investigation is complete, you’ll receive an update with the results. If your dispute is successful and your credit report changes, you’ll get a free copy of your credit report in its updated state.

Don’t be shy. If at first you don’t succeed, try, try again. If you send a dispute letter and it doesn’t work, try to initiate the dispute online or vice versa. Come up with your own ideas and see what happens! If there is a mistake on your credit report, you deserve for it to be corrected right?  Absolutely!

If after exhausting your options with the credit bureaus and/or credit furnishers and you’re still unsatisfied with the result of your dispute you can submit a complaint to the Consumer Financial Protection Bureau (CFPB).

Next Steps…

Now that you are on your path to credit score enlightenment, the only thing left to do is take what you have learned and use it to maintain or improve your own score. It may seem like a lot to digest but I guarantee you once you see the impact a good credit score can have, you’ll be glad that you took the time to educate yourself.