Loan Balances And Your Credit Score
Your loan balances also affect your credit score in a similar way. The credit score calculation compares your loan current loan balance to the original loan amount. The closer your loan balances are to the original amount you borrowed, the more it hurts your credit score. Focus first on paying down credit card balances because they have more impact on your credit score.
Review Your Credit Report
You are entitled to one free a year from each of the three reporting agencies and requesting one has no impact on your credit score. Review each report closely. Dispute any errors that you find. This is the closest you can get to a quick credit fix.
A government study found that 26% of consumers have at least one potentially material error. Some are simple mistakes like a misspelled name, address, or accounts belonging to someone else with the same name. Other errors are costlier, such as accounts that incorrectly are reported late or delinquent debts listed twice closed accounts that are reported as still open accounts with an incorrect balance or credit limit.
Notifying the credit reporting agency of wrong or outdated information will improve your score as soon as the false information is removed. About 20% of consumers who identified mistakes saw their credit score increase.
Establishing A Credit Score
If you dont have any credit history, get started! A positive credit history helps out nearly every aspect of your financial future, whether its purchasing a car, renting or buying a home, or even applying for a job.
The easiest way to start is to apply for a line of credit. Credit cards for gas stations or department stores are generally easy to obtain and are good ways to build solid credit. Use them responsibly, being careful not to overcharge. The key is to pay your bill on time each month.
If you cant get approved for a traditional credit card, . These cards require a deposit, often equal to the credit limit you will be extended with the card. For example, a $500 deposit will get you a secured credit card with a $500 spending limit.
These cards act the same as unsecured cards in that you receive a monthly bill and payment is expected each month. Be sure that the spending on the secured card is reported to the credit reporting bureaus.
In most cases, as long as you pay each month, your deposit will be refunded when you are finished with the card. Your deposit cant be used to make the monthly payments.
Becoming an authorized user is another way to establish a credit score.
Being an authorized credit card user is the best position possible in the credit world: you get all the benefits and none of the responsibility. You spend, someone else pays, and everybodys credit improves.
That is the sole responsibility of the cardholder.
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Make Your Payments As Agreed
Once you have caught up your late payments and are now paying your debts on time, it is important to continue paying as agreed if you want to re-build your credit. This is the simplest way to restore and maintain good creditjust make your payments as agreed. Pay on time every month, and work at paying down your balances and everything else should take care of itself. It really isnt any more complicated than this.
When it comes to paying your bills on time, just remember that computers keep track of your payments, not people. If you are late, there are no excuses. Computers are ruthless when it comes to keeping track of things, and you cant argue with them. Always pay your bills two or three days before they are due just in case there is a delay in your creditor receiving your payment.
How To Fix Your Credit Score Yourself
If you have poor credit, you can fix your credit score , but it can take time – even years. Because of the time involved, we prefer to talk about this process in terms of re-building or re-establishing your credit rather than simply fixing your credit. Fixing sounds like a fast process, but aside from a couple exceptions, there is rarely anything quick about it.
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What Items Can Damage Your Credit Score
There are three areas where your credit scores may be impacted, outside of major negatives such as bankruptcies, foreclosures, and judgments. These common damaging items include:
- Collection Accounts
- Charge Off Accounts
As you can see by the charts below, there is wide room for improvement by getting inaccurate and negative information on your credit report removed.
Limit How Often You Apply For New Accounts
While you may need to open accounts to build your credit file, you generally want to limit how often you submit credit applications. Each application can lead to a hard inquiry, which may hurt your scores a little, but inquiries can add up and have a compounding effect on your credit scores. Opening a new account will also decrease your average age of accounts, and that could also hurt your scores.
Inquiries and the average age of your accounts are minor scoring factors, but you still want to be cautious about how many applications you submit. One exception is when you’re rate shopping for certain types of loans, such as an auto loan or mortgage. Credit scoring models recognize that rate shopping isn’t risky behavior and may ignore some inquiries if they occur within the span of a couple of weeks.
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Check Your Credit Report
First things first, youll want to take a look at your credit report. You can get a free copy of your credit report from AnnualCreditReport.com. Under federal law its required to provide one free credit report every 12 months from the three credit-reporting agencies, Experian, Equifax and TransUnion. You can also get a free copy if you were denied credit in the last 60 days.
As financial institutions dont always report to all three bureaus, each report may look slightly different. Its important to read each credit report carefully to make sure theyre all correct. This is because you dont always know which report a potential lender will look at.
Monitor Your Credit Regularly
Keep track of any changes that resulted from your credit report clean up. This can help you create actionable plans and work more efficiently with lenders and creditors moving forward.
Also continue to get copies of your credit report over the years. That way, you can more quickly notice any errors and take action. It wont be fun to have to send multiple disputes every 10 years.
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More Ways To Get A Free Credit Report
You can also get a free copy of your credit report through Experian, Equifax, and TransUnion, with each bureau offering slightly different methods of obtaining your report.
When you register for an Experian account, you’ll receive a new free credit report every 30 days at sign in. Similarly, when you sign up for a myEquifax account, you’ll get free access to six additional credit reports each year. TransUnion will redirect you to AnnualCreditReport.com to order your annual free report. However, if you would like an additional TransUnion credit report, and you don’t qualify for a free or reduced rate, it will cost $11.50.
In addition, all three bureaus, through AnnualCreditReport.com, have made free weekly credit reports available through April 2021 to help those financially affected by the 2020 recession.
You’re also entitled to a free credit report if you’ve been turned down for credit because of something on your credit report, if you’re currently receiving government assistance, if you’re unemployed and plan to look for a job soon, or if you think you’ve been a victim of credit card fraud or identity theft. Some states also have laws that let you get an additional free credit report each year. All these free credit reports should be ordered directly through the credit bureaus.
Guide: How To Clean Up Bad Credit
If youve had a few diversions along the road to financial wellness and youre looking for information on how to clean up bad credit, keep reading for our guide on what steps you should take to potentially give a paltry credit score a healthy boost.
Although you can often get away with throwing dry clean only clothing into the washing machine, using the wrong cleaning method for some garments can leave you with a sweater three sizes too small .
Moral of the story? Theres usually a right way and a wrong way to clean something.
When it comes to cleaning up bad credit, choosing the wrong methods may do more damage than good, leaving your credit in tatters. Weve put together a guide to help you determine the best way to clean up bad credit, quickly, without ruining your credit score in the process.
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How To Clean Up Bad Credit Fast
Perhaps you’re ready to apply for a mortgage loan or buy a car. Checking your credit report and score before applying for financing provides some indication of your approval odds. But what if your report and score reveal problems that can ruin your chances of an approval? Rather than accept credit problems, take steps to clean up your bad credit fast and get the financing you need.
Pay down accounts that have balances. You can quickly raise a bad credit score by paying down or eliminating your high credit card balances. What you owe on credit cards accounts for 30 percent of your credit score. Have self-control and do not exceed 30 percent of your credit limit. For example, the balance on a credit card with a $1,000 limit should not exceed $300.
Fix payment history. Being 30, 60 or 90 days late on payments hurts your score. Start anew and provide payments by the due date to increase your score and clean up bad credit. Use online services or telephone payment systems to avoid tardiness and late fees.
Limit inquiries. Diversifying and acquiring a mixture of accounts helps your score. However, applying for many different accounts within a short time frame takes points off your score. Apply for credit only when necessary to avoid lowering your credit score.
Regularly Check Your Credit & Track Your Score
As anyone who has ever lost weight on a diet can likely attest, its one thing to get rid of the weight its another thing entirely to keep it off. The same thing applies to debt and bad credit you cant clean up your credit simply to then ignore it again.
Instead, set up a regular schedule to track your credit scores and check your credit reports. Use your annual free credit reports to ensure your credit reports remain clear of errors, inaccuracies, or fraudulent accounts.
Keep in mind that your free credit reports dont typically include your credit scores. On the plus side, most credit cards will provide free monthly or quarterly credit scores, as do a number of free third-party services. Many credit monitoring services that offer more extensive services can also be found.
- Get quarterly access to your 3-bureau credit report
- Reports come with all 28 most commonly used FICO Score versions
- Receive alerts for any identified changes to monitored data for your Experian, TransUnion and Equifax credit reports
- Up to $1,000,000 in Identity Theft Insurance
- UNLIMITED updates to your TransUnion Credit Report & Score
- Email updates of critical changes for ALL 3 bureaus
- Lock & Unlock your TransUnion & Equifax credit reports
- Up to $1,000,000 in Identity Theft Insurance
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Keep Credit Cards Open
If you’re racing to improve your credit profile, be aware that closing credit cards can make the job harder. Closing a credit card means you lose that cards credit limit when your overall credit utilization is calculated, which can lead to a lower score. Keep the card open and use it occasionally so the issuer wont close it.
What If I See A Mistake On My Credit Report
You can dispute mistakes or outdated things on your credit report for free. Both the credit bureau and the business that supplied the information about you to a credit bureau are responsible for correcting inaccurate or incomplete information in your report. Make sure the information in your report is accurate, complete, and up to date before you apply for a loan for a major purchase like a house or car, buy insurance, or apply for a job.
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Incorrect Information On Your Credit Report
Relatively speaking, the easiest thing to fix on your credit report is inaccurate information. Clerical errors could easily lead to credit report errors. Dont overlook these errors because they could be hurting your credit. Submit a credit report dispute letter to have inaccurate information removed.
Bring High Account Balances Below Your Limit
Your , a ratio that compares your total debt to total credit, is the second biggest factor that affects your credit score. It’s 30% of your score. The higher your balances are, the more it hurts your credit score.
Having maxed out credit cards costs precious credit score points . Bring maxed out credit cards below the credit limit, then continue working to pay the balances off completely. Your credit score responds better to credit card balances that are less than 30% of the credit limit, below 10% is ideal.
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Tips For Boosting Your Credit Score
- It can happen to the best of us. One day were doing fine, then the next, weve forgotten to make a credit card payment. Now youre facing penalty fees, a penalty APR and some . While one late payment wont drastically drop your credit score, its not going to look great. One way to quickly bounce back is to simply pay it all off at once. That way, you wont hold on to a huge credit card balance that will continue to earn interest.
- If the credit card debt has become too much, consider signing up for a balance transfer credit card. This can help you transfer the balance from one high APR card to another card with a low, or zero, APR card. Its always important to pay off the balance while the balance transfer card actually has a 0% APR though, since theyre usually limited time offers.
- Dont have any credit history? Dont worry, theres a safer way for you to build your credit than jumping right into the credit card world Thats with a secured credit card. These cards require a security deposit and usually begin with low credit limits. That way, you can have some safety and support when building your credit.
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Get Collection Notices Removed From The Public Records Section Of Your Credit Report
When you obtain a copy of your credit report, you may notice that it has a number of sections. The main section shows the different types of credit or debts that you have , what company the credit or debt is with, your credit limit, your payment history for the past 7 years, when the account was opened, when you last made a payment and the amount of the payment. This information cannot be removed from your credit report. It is what the lenders computer system reports . However, there is a public records section near the bottom of the report that can contain old, unpaid parking tickets a city is reporting, an unpaid cell phone bill, an unpaid utility bill, or a small debt some company claims you owe them.
Keep Your Old Credit Cards
Your age of credit history has a moderate but still meaningful impact on your credit score. Say you’ve had a certain credit card for 10 years closing that account may decrease your overall average credit history and negatively impact your score, especially over the short term.
If you’re hoping to increase your credit score but you also need to get rid of a credit card account, get rid of your “newest” card.
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Removing Collection Accounts From A Credit Report
Whether your attempts to pay for delete are successful can depend on whether youre dealing with the original creditor or a debt collection agency. As to the debt collector, you can ask them to pay for delete, says McClelland. This is completely legal under the FCRA. If going this route, you will need to get that in writing, so you can enforce it after the fact.
What to keep in mind, however, is that pay for delete with a debt collector may not remove negative information on your credit history that was reported by the original creditor. The creditor may claim that its contract with the debt collection agency prevents it from changing any information that it reported to the credit bureaus for the account. That said, some debt collection agencies take the initiative and request that negative account information be deleted for customers who have successfully paid their collection accounts in full.
Before taking this step, consider how collection accounts may be impacting your credit score. The FICO 9 credit scoring model, for instance, doesnt factor paid collection accounts into credit score calculations. So if youve paid off or plan to pay off a collection account, then you may not need to pursue pay for delete if your only goal is improving your credit score.