How to Improve Your Credit Score

Your credit scores will automatically improve as the overall credit picture gets better. Although there is nothing than can be done to improve your credit score over night there are certain things you can do that will steadily increase your scores month to month.

The first thing you need to do is to obtain a copy of your credit report from all three credit bureaus (Equifax, Experian and Trans Union) and review them for inaccuracies. If there are any inaccuracies or outdated information, write the repository reporting the misinformation. Send a certified letter regarding the dispute along with all available supporting documentation, return receipt requested. The Fair Credit Reporting Act (FACTA) gives the repository five days to notify the reporting creditor of a dispute and request an investigation. Within 30 days, the reporting creditor must report back to the repository. That report will instruct the repository to update the entry, delete the item or let it stay as it. If there is no response regarding the dispute, the repository must remove the item from your file.

Remember, items that get deleted due to a lack of response from the creditor can reappear at a later date. Creditors routinely update the credit bureaus and an item that was removed because of a lack of response from the creditors, can easily reappear the next time your file is updated. That’s why it is so important to supply as much documentation as possible when disputing an item on your report.

Once you’ve confirmed that the information in your credit file is correct or that you have addressed any errors that appeared, you can then move on to the next step. Following this list of suggestions will bring your scores up over 720 (the threshold of excellent credit) and keep them there even if you make an occasional late payment. The credit score is a mathematical analysis of your creditworthiness. The more positive data that appears in your file the less impact a late payment will have on your score. Your goal is to do whatever you can to maximize the positive entries so if you do make a mistake its impact is minimized.

1.       Get in the habit of paying your bills by the due date. Don’t depend on the grace period. Too many people look at the due date, add 15 days to it and focus on that date to make payment. The problem you run into here is that you create an opportunity for your payment to be credited against your account late. A delay in mail delivery, a backlog in the creditor’s workflow or a creditor who purposely takes its time in posting your payment will generate a late charge and a late payment on your credit report. Are you technically within your right to use the full grace period? Yes, you are but unless you’re willing to send all your payments via certified mail return receipt requested you cannot prove that the payment was made timely. You end up in a fight where the chances of winning are slim. The creditor has nothing to lose, only you. The grace period gives you a margin of error. So any time lost in delivery or processing doesn’t have an adverse effect on you. There will be times you need to use the grace period and don’t be afraid to use it as needed. The approach is to minimize the opportunity for a late payment to be posted, nothing more. A detail to keep in mind is that with most creditors a payment that posts 15 days past the due date triggers the late charge and at 30 days it then gets reported as late to the bureaus. There is no guarantee that all creditors follow that standard or that they follow it every time.

2.      When you receive your bills from the various creditors take a look at how soon the due date is. You’ll notice some creditors show a due date within a few days of your receipt of the bill. You should look to pay down those creditors before any other. If you have the opportunity to do a balance transfer to a creditor with a more sensible cycle, take advantage of it and retire the creditors that are baiting a trap for late fees. Don’t allow creditors to take advantage of you.

3.       Utilize your ability to take cash advances off your credit cards if money is tight. It’s better to borrower additional money than to pay any of your creditors late. This strategy preserves the integrity of your credit score and at the same time reduces the chances of your creditors freezing your credit lines and making a bad situation worse. Borrowing to meet bills is a band aide solution to be used to address short-term problems. If you find yourself relying on this approach on a regular basis, you will need to find out what the real cause of the problem is and find a long-term solution to it. The most common reason people run into serious financial problems is that they use short-term fixes to address a long-term problem. By the time they realize the magnitude of the problem, it is too late to do anything about it.

4.      Keep your credit card statements and periodically compare them. If your total credit card balance is increasing each month you will need to figure out why. You may be spending more money than you are making each month and that’s a condition that can’t go on for long. They earlier you find this out, the more time you will have to find a solution to the problem.

5.       If you have credit card debt, look at the outstanding balances and your credit limits. Your goal is to keep your debt distributed among several cards keeping the outstanding balance at less than 30% of the credit limit on each card. The closer you come to this goal, the higher you score will go and should you get hit with a late payment the damage will be minimal.

6.       If you’re paying off credit cards either through some form of debt consolidation loan or from your own personal funds don’t close the accounts. Having available credit that is not being utilized enhances your credit score. You may have no intention of ever using the card again. You may even have destroyed the card. As long as the account is still open, it gets reported as credit that’s available to you and you have chosen not to use. Positive data that is reflected in your credit score with no effort on your part.

7.       Along the same line of reasoning, never request a creditor to lower a credit limit. Nothing good can come from it. All that happens is that you now appear to be using a higher percentage of your available credit.

8.       A judgment had been filed against you and you have now paid off what was owed. Be sure to get a Satisfaction of Judgment issued. The attorney for the creditor is obligated to give you the Satisfaction. Once you have it, you need to file it in the county that the judgment was filed.  If you don’t, the judgment will stay as an open judgment on your report. A public records search is done when a credit report is run. The only thing that will remove the judgment from public records is the Satisfaction. Although the creditor is obligated to issue the Satisfaction, they are not obligated to file it. That is your responsibility.

9.       When paying off a collection account you want to get a paid receipt from the collection agency as well as the creditor. In the event that the collection agency doesn’t update the repositories, which typically happens, you have in your possession the documentation necessary to dispute your report should the need arises.

10.     In the event you need to file for bankruptcy, be sure to get copies of your most recent credit reports from all the bureaus. This way you can be sure that all creditors on the report are addressed in the bankruptcy filing.

11.     Once your bankruptcy has been discharged you will now need to focus on reestablishing credit. The way to start is with the use of a “secured credit card”. This is where you deposit money in an account and a credit card is issued with a credit limit matching the amount on deposit. So if you deposit $500.00 you will get a card with a credit limit of $500.00. Building off of the credit history you develop here, you will then be able to move into store cards and unsecured credit cards. As time progresses you will begin to receive credit at lower and lower interest rates. If you’re diligent, your credit will improve (after approximately 2 years) to the point where you will have access to credit at the going rates. Just as if the bankruptcy never happened.

If you get in the habit of following these suggestions you will be in control of the most important component of your financial life. In order to survive in modern society you need to have access to credit. Through the proper use of credit you not only will have it available when you need it, you will also gain access to it at the lowest possible cost.