Check Your Free Credit Score
First, check your credit score for free to view the factors that are most affecting it.
Your credit score is most impacted by the following elements:
- Your payment history , including whether you always pay bills on time or have had late or missed payments in the past.
- How much total credit you have available and how much of it you’re actively using, known as your credit utilization rate .
- How long you’ve been using credit .
- The mix of credit types you’ve had and are currently using .
- The number of recent credit accounts you’ve opened and applications you’ve made, which are known as hard inquiries .
It’s also important to check for any errors on your , including inaccurate personal information or accounts fraudulently opened in your name. Especially if it’s negatively affecting your score, dispute this information with the credit bureaus. Submitting a dispute does not affect your credit itself. But if any content in your report changes, your score could change too.
Whats On Your Credit File
As there is no automatic right to credit its important to ensure that what is on your credit file is correct. You can request incorrect information to be deleted and this will help your credit rating. With the rise of identity theft, there is also a risk that people will try to obtain credit in your name. This could also be recorded on your credit file potentially damaging your legitimate right to getting credit in the future.
So, do you know what is in your credit file? Do you know why you are being refused credit? As it is so important to know your credit status you should get a copy of your credit file.
For the detail of managing your credit file read 101 Ways to Improve Your Credit Rating.
The main credit reference agencies gather four main different types of data about you:
- Electoral roll information about your UK residency, including your address
- Court records such as whether you have been subject to CCJs , IVAs, bankruptcies and other debt orders
- Searches by lenders when you have applied for credit & utility companies
- Account data this covers your account behaviour. Primarily this means how well you meet repayment deadlines.
These are the simple rules that, over time, will help you clean up your credit file and so improve your credit rating. Keep in mind that this is about improving the data held on your files and this in turn will be used by companies to judge your credit score:
and dont forget to check that what is on your credit file is correct.
How Can I Improve My Credit Score
If you want to repair or improve your credit score, keep in mind that doing so generally wont be a quick and easy process. It may take a significant amount of time and require an extended period of financial responsibility on your part.
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Be Wary Of New Credit
Opening several credit accounts in a short period of time can cause you to appear risky to lenders and, in turn, negatively impact your credit scores. Before you take out a loan or open a new credit card account, consider the effects it could have on your credit.
Note, however, that when you’re buying a car or looking around for the best mortgage rates, your inquiries may be grouped together and counted as only one inquiry for the purpose of credit scoring. In many commonly used scoring models, recent inquiries have a greater effect than older inquiries, and they only appear on your credit report for 24 months.
Open A New Credit Card
You may wish to open a new card to improve your credit. A new credit card increases your total available creditwhich impacts your credit utilization ratio. The smaller your ratio, the better your credit score.
When considering whether to open another card, remember that you want to pay off the balance, not incur more debt. Youll also want to check whether the new card has an annual fee and if the fee is worth it to you. Opening several new accounts at once could negatively impact your score, as it makes you appear riskier to potential lenders.
Remember, too, that the length of your credit history matters. In general, accounts that have been open longerwith a good payment historyare better for your credit score. Keep that in mind when deciding which accounts remain open and which ones you should close. By keeping your older accounts open, youre building your credit age. The average amount of time all of your accounts have been open is considered your overall credit age. The older your credit age, typically the better your score.
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Pay Your Collection Accounts Carefully
When you dont pay a debt, your creditors and/or collection agencies may sue you. So, while we get the urgency to pay off your debts and be done with it, you should exercise caution when youre paying old collection accounts.
See, even one small payment on time-barred debt might restart the collection clock. That one payment could reopen the door to a potential lawsuit for the remaining unpaid balance.
If you plan on settling an old collection account, its usually best to wait until youve saved the entire amount thats due first. You may also want to get some advice on how to proceed from a consumer debt attorney.
In terms of your credit scores, even if you settle a collection account, dont expect an immediate surge in your scores. Unless a lender is using a newer credit scoring model , paid collection accounts may continue to damage your credit scores as long as the account stays on the reports.
But we have some good news. As collection accounts grow older, they impact your credit less and less, and collection accounts are deleted from credit reports 7 years after the date of default.
MoneyTermTime Barred Debt
As debt grows older, it may become time barred. When a debt is time barred, a debt collector cant sue you. The time-barred debt clock is different in every state.
Accessing Information From Specialized Bureaus
Once youve got your credit report in order from the three major credit bureaus, you may want to think about reviewing your files from specialized credit bureaus.
The information on these credit reports may or may not be relevant to you. It just depends on your financial history. Here is a brief background on each one to give you an idea of other places that might impact your creditworthiness.
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Avoid New Hard Inquiries
If you’re focused on increasing your score, you may want to delay applying for new credit in the meantime. A hard inquiry happens when a lender checks your credit to evaluate you for a financial product. It will appear on your credit report and may affect your credit score. That’s because lenders could consider you a greater credit risk if you’re attempting to borrow money from many different sources. Applications for new credit account for 10% of your FICO® Score.
Soft inquiries don’t affect your credit they occur when you check your own credit score or when a lender or credit card issuer checks your credit to preapprove you for a product. It’s also likely you won’t see a major effect on your score if you’re shopping for a single auto loan or mortgage and apply with multiple lenders in a brief time period. Scoring models distinguish this process from, say, opening lots of credit cards at one time, and typically won’t penalize your score the same way.
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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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, the fee will based on the state in which you live.
Through AnnualCreditReport.com, all three credit bureaus have made free weekly credit reports available through April 2022 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.
Become An Authorized User On Someones Credit Card
An is someone added to an existing credit card account under someone else’s name.
The financial risks here are mostly for the cardholder, not the authorized user. But as someone trying to build credit, Lynch says you do have to ask some uncomfortable questions before sealing the deal, like inquiring about the persons payment habits to determine whether this is the right move for you.
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Consider Consolidating Your Debts
If you have a number of outstanding debts, it could be to your advantage to take out a debt consolidation loan from a bank or credit union and pay off all of them. Then youll just have one payment to deal with, and, if youre able to get a lower interest rate on the loan, youll be in a position to pay down your debt faster. That can improve your credit utilization ratio and, in turn, your credit score.
A similar tactic is to consolidate multiple credit card balances by paying them off with a balance transfer credit card. Such cards often have a promotional period when they charge 0% interest on your balance. But beware of balance transfer fees, which can cost you 3%5% of the amount of your transfer.
Reduce The Amount Of Debt You Owe
Your , or the balance of your debt to available credit, contributes 30% to a FICO Score’s calculation. It can be easier to clean up than payment history, but it requires financial discipline and understanding the tips below.
Keep balances low on credit cards and other revolving credit: high outstanding debt can negatively affect a credit score.
Pay off debt rather than moving it around: the most effective way to improve your credit scores in this area is by paying down your revolving debt. In fact, owing the same amount but having fewer open accounts may lower your scores. Come up with a payment plan that puts most of your payment budget towards the highest interest cards first, while maintaining minimum payments on your other accounts.
Don’t close unused credit cards as a short-term strategy to raise your scores.
Don’t open several new credit cards you don’t need to increase your available credit: this approach could backfire and actually lower your credit scores.
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When Do Collection Agencies Get Involved
If an account has a past-due balance of more than 30 days, your creditor may turn your account over to a collection department or agency to seek the funds directly from you. When an account is sold to a collection agency, the account can be noted on your credit reportoften having an enormous negative impact on your credit score.
Collection agencies work to collect funds on amounts due for credit cards, personal loans, auto loans and mortgages. Collection entries will fall off of your report after seven years. If the collection information is incorrectjust like any other erroryou can file a dispute.
Check For Errors On Your Credit Report
Download a copy of your credit report to make sure there arent any inaccurate negative items. According to the Consumer Financial Protection Bureau, common credit report errors include closed credit accounts showing as open, debts that appear multiple times and incorrect balances.
You can get a free credit report from all three major by visiting annualcreditreport.com. Note: This wont give you a score, but it will show you negative information and areas that may need improvement.
If you spot any incorrect information on your credit report, you can dispute it by writing a letter to the appropriate credit reporting agency. The Federal Trade Commission has an example credit disputing letter can look at if youre unsure how to do this.
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Can You Pay To Have Your Credit Fixed
If your credit file has information you feel is incorrect, credit repair companies may offer to dispute the information with the credit reporting agencies on your behalf. Credit repair companies typically charge a monthly fee for work performed in the previous month or a flat fee for each item they get removed from your reports. However, Experian does not charge consumers or require any special form to dispute information, so this is something you can do on your own at no cost.
If you’re on a monthly subscription, the cost is typically around $75 per month but can vary by company. The same goes for paying a fee for each deletion, but that option typically runs $50 each or more.
That said, it’s important to keep in mind that credit repair isn’t a cure-alland in many cases it crosses the line into unethical or even illegal measures by attempting to remove information that’s been accurately reported to the credit bureaus. While these companies may try to dispute every piece of negative information on your reports, it’s unlikely that information reported accurately by your lenders will be removed.
And again, credit repair companies can’t do anything that you can’t do on your own for free. As a result, it’s a good idea to consider working to fix your credit first before you pay for a credit repair service to do it for you.
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Understanding Bad Credit Issues
One of the most confusing issues surrounding repairing bad credit is the amount of time each negative item stays on a credit report. Each type of negative mark has a different timeframe, so lets take a closer look at the most common bad credit entries.
- Late payments a late payment entry from a creditor can stay on your credit report for up to seven years from when the incident took place.
- Charge-offs any account that was not paid as agreed may be considered a charge-off by the creditor. This entry can also stay on your credit report for seven years, from the date it was charged off.
- Foreclosures both foreclosures and short sales stay on a credit report for seven years.
- Hard inquiries a hard inquiry takes place when a creditor checks your credit score and report. These stick around for two years in most cases.
- Collection accounts any account that has found its way to a collection agency may stay on your credit report for up to seven years, plus 180 days from the date of the incident that prompted the move to collection status.
- Bankruptcies all bankruptcies may legally stay on a credit report for up to 10 years, but most Chapter 13 bankruptcies that are discharged are removed after seven years.
While these time-frames for negative credit marks seem long, you do not have to wait for entries to fall off your credit report before starting the process of rebuilding.
Apply For New Credit Sparingly
Though applying for a new credit card can help boost your credit score, its important to note that you should limit how often you apply for new credit products. Applications can hurt your situation in a few ways:
- Generating hard inquiries. When you apply for credit, this typically generates a hard inquiry, where the lender pulls one or more of your credit reports to evaluate your creditworthiness. A hard inquiry will typically hurt your credit score by 5 to 10 points, and will stay on your reports for two years .
- Reducing your average age of accounts. Length of credit history accounts for 15% of your FICO Score, and part of this is the average age of all your accounts. Opening new accounts reduces that average age, particularly if youre new to credit and dont have many other accounts to balance things out.
- Signaling that youre desperate. If lenders see a lot of recent inquiries on your credit reports, it might signal that youre desperate for credit and unlikely to pay back what you borrow and that means lenders will be more likely to reject your applications going forward.
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