Establishing a great credit score benefits you when you buy a home, lease a car, buy insurance, or find a job. So it’s worth your while to learn about how to improve your credit score:
- Check Your Credit Score and find out how you rank. Several services do it free by mail or online. This is the most important step since you need to know where you stand before you can improve your rating.
- Understand what affects Your Credit Score so you know how you can infulence it. Paying bills on time, never letting balances go unpaid, not ‘maxing out’ your card are a few ways that affect the score.
- Leverage other people’s good credit by having them co-sign. The person authorizing your credit line or loan should have an out standing credit rating since lenders will attribute your co-signers credit past to your account
- Get started early with credit. Try to establish a credit card as early as possible to start a credit history. A person with 5 years of credit history with minor blemishes might have a higher score than a new applicant since the credit agencies have not had time to assess worthiness.
- Secure your credit with a secured credit card from the bank. Many banks will let you offer up your own cash as colleteral and extend an equivalent credit line to you. You can tell the bank to keep $1,000 on reserve (should you not be able to pay off your balance) and in exchange for the security, the bank will give you a credit card. This is a great way to build your credit score, especially if you don’t have a history, because the bank’s risk is minimized so you show greater potential to be able to pay back your loan.
- Don’t close old accounts that are in good standing. You wouldn’t want to throw out that recognisitioan award you received because of completing a special task at school or work, so why would you close an account that is reflective of your great credit quality? Lenders wants a long time period of credit so keep those accounts open (especially the very old ones).
- Pay creditors on time and reap the rewards. If you pay online you avoid costly interest charges and increasing debt, you also boost your credit rating since you pay your debts in a timely fashion.
- Keep a decent amount of credit unused as a buffer incase of emergencies and times of need.
If your credit report contains inaccuracies or errors then you’ve got legal rights to challenge the mistakes and fix them.
After ordering your credit report from a credit rating agency and noting the inaccuracies, you can then make a written request to them to verify the information on your report. The credit agency generally has 30 days to investigate your claim. If it turns out that you were right about the false information then the rating agency will give you written copy of their investigation as well as a fresh copy of your credit report.
If a credit agency can not verify your disputed item then it must be deleted from your report.
For items on your credit report that you feel need further explanation, such as unpaid bills due to a military relocation, job termination, ill health, you can ask your credit agency to include that information in the comments section of your report. The explanation will now be available every time someone checks your report.
Once the agency changes an item on your report, they may not revert their change unless the creditor provides concrete evidence otherwise.
Depending on jurisdiction you may also seek litigation against a credit rating agency if the agency fails to investigate and remove erroneous information. Speak to your local consumer protection agency or credit attorney to find out more.
Remember to document all information you send the agencies and provide them with just the facts. Be persistent and aggressive and your hard work will pay off with a cleaner credit report.
Refinancing several high interest credit lines and loans into lower monthly payments is a good idea but be sure to know of the dangers of debt conslidation companies.
Debt consolidation is not a cure for your debt problems — it simply creates a lighter burden to carry. As you consolidate your loans, you want to better manage your debt and not add to it.
Yet 70% of Americans who consolidate their debts using a home equity loan end up with the same amount (or even higher) debt in 2 years according to Cambridge Credit Corporation. Before you start calling debt consolidation firms, keep in mind the following pitfalls of debt consolidation:
- Higher actual rates than advertised: Debt consolidation companies love to lure you in with extremely low interest rate offerings. But they’re not clueless about money. Like other lenders, they know that your risk as a borrower is correlated with your credit score. So those flashy low rates are for customers who’ve got in a little over their heads but still have a solid credit rating. The lower your rating, the higher the rate.
- The balance transfer fallacy: 0% (or even low single digit %) rates do not last forever. A credit card offering you a 0% rate if you transfer your outstanding payments is only doing so for a limited time. You’ve maybe got 6 months before they hike that rate to something that you were paying on your old cards. You need to be looking for long run benefits with debt consolidation, not short run patches.
- The All Knowing Credit Consolidation Company: They make it seem like they’re a borrowers’ dream. “CUT YOUR MONTHLY PAYMENTS IN HALF” or “QUICK CREDIT FIX: FAST, EASY, AND 0% Rates“. But if it was truly that fast, easy, and cost effective, then everyone would be running to these guys. The fact of the matter is that these credit consolidation companies also have to charge you for the service they perform. Small service fees are expected, but stay cautious of companies taking large commissions and advertising a quick fix to a long term problem.
Be smart about debt consolidation and be wary of the hidden dangers on your path to clean credit.
Credit counseling firms are plentiful. And most of them are non-profit organizations willing to work with you to solve your debt problems. Many credit counselors are affordable services, but not all are legitimate organizations.
When you’re shopping around for a credit counselor (and you should be shopping around), stay alert for the following signs of a quality credit counseling company:
- Free “No Strings Attached” Information: You shouldn’t have to pay anything, or even provide personal details on your financial situation, to obtain some literature from a credit counseling firm. Many companies will even offer a free initial budgeting session just to give you some information about what they can do for you.
- A Plan For You: Debt management is a big picture plan. Your credit counselor not only needs to provide you with ways to lower your monthly payments, but they should also be planning, budgeting, and educating you about personal finance. You want them to paint you the big picture of your financial situation as well as they way out. Outstanding credit counseling agencies are interested in showing you a long term solution.
- Certification, Training, Associations: What kind of proof does the company have on credit counseling experience? A good agency will have trained counselors and they’ll also belong to the National Foundation for Credit Counseling, Association of Independent Consumer Credit Counseling Agencies, or another accredited association. A good record with the Better Business Bureau can’t hurt either.
- Clear, Upfront Costs: Get written confirmation of all fees (including optional ones) that they plan on charging you. What do their quotes exactly include and will you be charged further fees that aren’t listed? The credit agency should be very clear with about their costs. Get their fees in writing as well. If the counselor is compensated per client sign-up, maybe it’s time to move on and find another agency.
- Scrutinizes You For Financial Details: Consumer Reports says that outstanding credit counselors will ask you for detailed information on your financial status: pay stubs, credit statements, and loan papers. Instead of asking for “rough estimates” of your monthly financial obligations, quality counselors will dig deep before offering you a budget.
Use the above criteria to narrow your search for an outstanding credit counseling company.