Pay Your Bills On Time – This is the most important factor in determining your credit score. Getting in the habit of making on time payments is the best way to rebuild our credit rating. Delinquent payments can decrease your score. Missing even one payment can reduce a credit score by 50-100 points.
Pay Down On Your Debts – Lenders like to see a large distance between the amount of debt reported and the total credit limits. The more debt you pay off, the larger the gap and better your score. Charging less can also improve your score, even if you pay off your credit cards each month.
Don’t Close Old, Paid-Off Accounts – Closing accounts does not help your score. Closing credit accounts lowers the total credit available to you and it makes any balances you have look larger in credit score calculations. Keep old accounts open rather than opening new credit accounts. Only apply for credit you really need.
Avoid Bankruptcy - A bankruptcy can reduce your score by 200 or more points. Recovering from bankruptcy can be tough and the cost of obtaining credit is more expensive.
Fix Any Errors - You should read through each of your 3 credit reports and note anything that is incorrect. Look for error, outdated information and accounts that aren’t yours. Negative information, such as late payments, delinquencies, liens and judgments should be dropped after 7 years. Bankruptcies can stay on your credit up to 10 years. Once you have a list of problems, contact the bureaus to investigate and fix errors listed on their reports:
Equifax: 1-800-997-2493
Experian: 1-866-200-6020
TransUnion: 1-800-888-4213
* If you get a creditor to remove an item from your credit report, make sure you get a letter from the creditor acknowledging the error. Keep all paperwork that is generated by these disputes and investigations.
Add Positive Information - If there is an account that you pay on time not listed on your report, or you have a creditor that doesn’t regularly update to credit bureaus. Contact the creditor to report the account to the bureau. If the creditor refuses or doesn’t respond, send a letter to the bureau with a copy of your latest statement and cancelled checks to prove you’re paying on time.
Establish New Credit - Apply for a secured credit card, this allows you to deposit a certain amount at the bank and you are given a MasterCard or Visa with a credit limit equal to the balance deposited. Also apply for a department store and/or gasoline card.
Use Credit Right –
1. Charge small amounts on each card, but never more than you can pay off each month.
2. Don’t apply for too many credit accounts; you only need 1-2 bankcards, a gasoline card, and a department store card acquired over a year or more to start a solid credit history.
3. Pay your bills on time, all the time.
4. Don’t max out your credit cards. Avoid using more than 30% of credit available to you.
Avoid Unnecessary Inquiries - Inquiries can stay on your report for 2 years, unless you check your own credit. Lenders who are looking at your credit may assume that other lenders have turned you down, or that you may be increasing your expenses and your capacity to pay off these bills in an addition to a mortgage may put you in Payment Shock. In this instance, shopping around for the right mortgage may shop you out of a mortgage.
