If you've had a few problems paying the bills lately, you are not alone. Tens of millions of Americans have blemishes on their credit reports that are serious enough to prevent them from obtaining credit cards and loans. It's easy to feel helpless during these times, but you can take some positive steps right away to repair the damage.
Even if your credit is satisfactory, but you would like to improve it, it is worth reading this article. The better your credit, the less you will pay in interest and typically insurance rates as well.
Before you can improve your credit, you must first know where it stands at this moment. It is possible to obtain free credit reports once each year, but you might have to pay to see your FICO score. Be sure you use a reputable service to get current credit reports from the major credit reporting agencies – Equifax, Experian and Trans Union.
Here are some quick tips for speedy credit repair:
One reason for a low credit score may be a lack of credit history, and don't fall for the myth that you must carry a balance in order to get good scores. Using a credit card or two and paying it off every month is the best way to establish a credit score. If a regular credit card is denied due to "lack of credit history," consider getting a secured card. This is where the bank gives you a credit limit that is equal to a deposit you make in advance.
Get an installment loan
Your credit score will improve fastest if you can show your level of responsibility with both major types of credit – revolving (credit cards) and installment (personal, auto, student and mortgage loans.) If you don't have one already, consider adding a small personal loan that can be paid off over time. Small community banks and credit unions are the best place to start, and look for loans that report to all three credit bureaus.
Pay down your debt
Making that final payment on your auto, student or mortgage loan is a great way to boost your credit score, but not nearly as much as paying down – or paying off – revolving debt such as credit cards.
Ideally, a lender wants to see a big gap between the amount of credit you are using and your available credit limits, so if you've been paying your bills on time it may be wise to ask for an increase in your credit limits. Debt experts recommend that you pay down the cards that are closest to their limits first, even before the highest-rate card.
Use credit cards lightly
Any time you rack up a big balance on a credit card, it can hurt your scores. This is because the balances reported on your last statements are used to calculate credit scores, and this is what is typically reported to the credit bureaus. A good idea is to limit your charges to 30 percent or less of the card's limit; with 10 percent being even better. If you regularly use up more than half your limit on a single card, consider using several cards to ease the load, or making a payment before the statement closing date.
Check your credit limits
Your scores might be artificially depressed if your lender is showing a lower limit than you actually have. Most credit card issuers will quickly update this information if you ask. If your credit card issuer makes it a policy not to report consumers' limits, the bureaus may use your highest balance as a proxy for your credit limit.
This means if you consistently charge the same amount each month -- say, $2,000 to $2,500 -- it may look to the credit-scoring formula like you're maxing out that card every month.
If you have an American Express charge card -- the kind that must be paid in full every month, rather than the kind on which you carry a balance -- you probably don't have to worry, because charge cards typically aren't included in the credit utilization portion of the FICO formula.
Get some goodwill
If you've been a good customer, a lender might agree to simply erase that one late payment from your credit history. You usually have to make the request in writing, and your chances for a "goodwill adjustment" improve the better your record with the company. A longer-term solution for more-troubled accounts is to ask that they be "re-aged." If the account is still open, the lender might erase previous delinquencies if you make a series of 12 on-time payments.
Dispute old negatives
You may have fought with the phone company over an unfair bill a few years back, resulting in a collections account, but that may be fixable. Continue protesting that the charge was unjust, or try disputing the account with the credit bureaus as "not mine," and be persistent about this. The older and smaller a collection account, the more likely the collection agency won't bother to verify it when the credit bureau investigates your dispute.
Correct significant errors
Your credit scores are calculated based on the information in your credit reports, so certain errors there can really cost you. Not everything that's reported in your files matters to your scores, but there are a few problems that are worth correcting.
Correcting your credit report now will save lots of time later, especially if you are planning to apply for a car loan or mortgage within the next year. By the time most consumers realize they have a problem with their credit score, it is already affecting their interest rates and credit availability. Be smart about your credit score and check your credit reports regularly.
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Few people can say they've never had an issue with their credit report, even if it was not their fault; but bankruptcy brings a whole new set of issues to your standing with the credit bureaus. Whether you filed a few weeks ago or a few years ago, it will be challenging to recover a stellar credit score for at least seven years. But what about the millions of Americans who were impacted by the financial fallout of a foreclosure, job loss, or divorce? Is there something that can be done to keep a decent credit report, even right after a fiscal disaster?
According to a recent article that appeared on MSN Money, "7 Steps to Clean Up Your Credit Report," the best way to stay on top of your credit is to look at your credit report regularly. It's not uncommon to find errors that can be fixed.
A good way to keep up with your credit report is to look at it whenever you do any major reorganizing in your house. When you start tidying up the garage or the linen closet, don't forget to fix the foundation of your credit worthiness. A credit report is more than just a record of how fast you pay bills; it also represents your financial stability. It controls everything from the interest rate you pay on a loan (and whether you can get one!) to your insurance rates and career eligibility.
The biggest mistake most Americans make is to only look at a credit report when it's time to refinance, buy a car, or make another big purchase. According to a study by the U.S. Public Interest Group, nearly 80 percent of all surveyed reports had incorrect information. Knowing that inaccuracies take time to clear up, this could be a problem if you're up against a deadline to secure a loan. Regardless of your credit history it is always better to check your credit reports periodically so you can catch any issues immediately.
MSN Money has developed a quiz to help individuals get an estimated credit score, but the best way to find out is to order a credit report. You can also get a credit report by visiting AnnualCreditReport.com. The three major credit reporting agencies are Equifax, Experian, and TransUnion.
If you're striving for perfect credit score, MSN Money recommends you take these steps:
1. Order a copy of your credit report: If you have been wondering about your credit status, why not order a report and find out what it is? Federal law entitles you to a free report every 12 months from each of the three major credit bureaus: Experian, Trans Union and Equifax. If you want to check your credit more than once per year, order one at a time and space out your requests throughout the year. Find out how to fix any problems with your credit by visiting Bankrate.com and viewing their Credit Repair for Dummies." Keep in mind if you are turned down for credit or for a job you have the legal right to see your credit report at no charge.
2. Start with the basics: When checking your credit report, be sure the basic information is correct first, including name, address, Social Security number, etc. If you find small discrepancies, they are unlikely to affect your score, but be sure to straighten out any serious inaccuracies, such as an incorrect Social Security number. Then check to make sure all the accounts listed on the report are actually yours.
3. Contact the credit bureau with any issues: According to the MSN article, "...if you see any negative information like a collection account that you don't think belongs there, it could be somebody else's account that got into your report by mistake, or something you forgot about." Make sure you take care of any major discrepancies immediately. Another red flag might be an account that shows a higher balance that what you typically carry, which could be a sign of identity theft.
Whether you have already filed for bankruptcy in Colorado or you are simply considering it, remember that most negative information remains on your record for at least seven years, and Chapter 7 bankruptcies stay on your credit report for ten years. If you are concerned about how financial issues may affect your credit status, consider your alternatives before filing for bankruptcy.