Having bad information on your credit report or a low credit score may be costing you literally thousands of dollars a year in higher payments. Your credit report and score can determine whether you can get anything from a mortgage to an apartment to a job or even a cell phone. You must know what is on your credit report and what your credit score is.
Read on to learn how to increase your credit score and why it’s important that you do.
What is a Credit Score?
Your credit score is a numeric expression of your creditworthiness and is used by everyone from lenders to landlords to show them the likelihood that you will repay your debts.
A FICO score is the most widely used credit scoring system. FICO is an acronym for Fair Isaac Corporation, the company that provides the credit score model to financial institutions. There are other providers of credit scoring systems as well.
Credit scores, on the scale assigned by FICO, range from 300 to 850. Less than one percent of the population has a credit score above 800, so it’s very unlikely that you will ever have an 850 credit score. However, if your credit score is above 720, you will still receive the best rates on anything you apply for.
The No. 1 problem with your credit scores comes from over extending your credit. Never use more than fifty percent of your available credit. If your credit limit is $5000, don’t use over $2500. Anyone looking needs to see that you’re responsible and able to pay off the debt you already have. If you’ve used to much of your available credit, work now to pay down your debt.
Next most important – pay your bills on time. Always keep cash reserves so if you have an accident or lose your job you can still make your credit card payments. Late payments REALLY hurt your credit score. To have a healthy credit score, make your payments on time.
Who looks at your credit score?
Insurance companies. If you’re a high risk based on your credit score, you’re a high risk for insurance companies and they’ll charge you a higher rate.
Employers. What’s the risk if they hire you?
Landlords. If you apply for a rental property, what risk do landlords take with you? Want to know what a landlord will see about you? Check out SimpleScreening.
Mortgage Companies. If you apply for a home mortgage, credit score not only affects whether or not you get a home loan, but what interest rate you will pay if you do. The higher your credit score, the less you will pay for all the above. A credit score plays a large role in a lender’s decision to extend credit and under what terms. For example, borrowers with a credit score under 600 will be unable to receive a prime mortgage.
How long do negative statements stay on your credit report? It varies by state but generally bankruptcy stays for seven years and liens for five years. On average, negative information stays on your credit report for seven to ten years.
If you have an error on your credit report, you must dispute it with all three national credit reporting agencies, Equifax, Experian, and TransUnion.
These credit report agencies do not control what is on your report, they only report what’s told to them by your creditors. If you have a dispute with something on your report, these agencies go back to the person who gave them the information and ask for clarity. They facilitate the process on your behalf.
These credit reporting bureaus are private, not government, agencies. If you have a concern with what’s been reported, don’t hesitate to contact these agencies and request clarification or correction. They will work with you to assist in making sure what’s reported is accurate. However, when it comes to credit disputes, the burden of proof is on you.
One of the places for free credit reports is AnnualCreditReport.com. This site allows you to request one report from Equifax, one from Experian, and one from TransUnion once every 12 months. You can choose to request all three reports at once, or you can space them out over the year.
AnnualCreditReport.com is not a credit monitoring service and they do not provide free credit scores of any kind. It is possible to purchase a credit score from one or more of the bureaus when you request your free credit report or reports. If you wish to request a fraud alert or correct erroneous information on your report, you will need to contact the credit bureaus directly.
To start, get a copy of your credit report from all three reporting agencies. Why all three? Different items may be reported to each one. Next, if you see anything questionable, write, call, or go on-line to file your dispute. The process takes about thirty days from the time of your dispute until you have a response.
Repeat the process as many times as you need until your report is clear of all errors. Work to pay down debt and increase savings. No more late payments. No more debt increase. All of this takes time but the money you save for the rest of your life because of a higher credit score is well worth the time and effort.
Start better habits today!
What have you done to increase your credit score?