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By Pam Leibfried
Your credit score affects whether you get hired – or not – for jobs, whether you are approved for loans, what rate you pay on your loans, and the amount you pay for insurance and other life expenses.
But don’t despair if your credit is borderline.
It’s common for those just starting out in life to have low scores. And many more established consumers have seen their credit score take a nosedive because of a medical or family emergency that hit their family and affected their ability to pay their bills on time. Fortunately, you can build that score up to a better range (and keep it there) by taking a few simple money-smart steps.
The first step to fixing any problems with your credit is knowing exactly what problems you have. And the easiest way to find out what’s on your credit report is to review it. But you don’t have to pay a monthly fee to one of those credit services that advertise on late night TV.
Legally, you can get three free credit reports every year – one from each of the “big three” credit reporting agencies – Transunion, Equifax and Experian. Just go to annualcreditreport.com and request your reports. If you want to monitor your credit reports on an ongoing basis, you can spread your free reports out across the year, getting one of your three freebie reports every four months. Each of your reports will be slightly different because some lenders don’t report to all three credit agencies.
Pro Tip: If you want to spread your reports out, but aren’t sure which one to request first, think about your near-term credit needs before you decide. If you know that you’ll be applying for a loan, try to find out what credit reporting agency your lender uses (some lenders will share that info with you), and get that report first. If you’re not going to apply for any loans in the near future, it probably doesn’t matter which one you review first.
If you get your credit report and see that it has errors, you can typically get them removed. Common errors in credit reports include incorrect balances, paid-off bills still showing up as being unpaid or overdue, and debts that actually belong to someone else.
Pro Tip: You can call or write the credit bureaus to dispute or correct errors at the numbers or addresses below:
TransUnion LLC Consumer Dispute Center
P.O. Box 2000
Chester, PA 19022
P.O. Box 4500
Allen, TX 75013 1-888-397-3742
Equifax Information Services LLC
P.O. Box 740256
Atlanta, GA 30374
When you receive your credit report, the factors that lowered your credit score are listed in the report. It could be that you just haven’t used credit enough to merit a high credit score (common for young consumers who are just establishing themselves financially).Or you may have a too-high credit ratio or a history of making payments late.
Pro Tip: Whichever issue is listed first on your report is generally the one that has the biggest impact on your score, so you should look at the list as a prioritized to-do list.
Your credit ratio is a measure of how much debt you are carrying compared to how much debt is available to you. If your credit ratio is too high, there are a couple of ways to improve that part of your credit score.
If your credit ratio is above 35%, the best thing you can do to raise your score is to pay off enough of your credit card debt (or your auto loan or home equity line of credit, if one of those loans is the culprit) to get you down to 35% or lower.
Pro Tip: If you’ve bought an appliance or furniture on an x-years-same-as-cash basis, the amount you owe will count against your credit ratio.
It may seem counterintuitive, but sometimes, increasing the line of credit on your credit cards or opening a new credit card is the quickest way to improve the credit ratio portion of your score. That’s because this number is not about the amount of your debt; it’s about the ratio of your current debt to your credit limit. Raising your credit limit will lower your debt ratio.
Pro Tip: If you’re thinking about increasing your credit limit by opening a couple of new credit cards, keep in mind that you shouldn’t do that right before you apply for a loan, because adding brand new credit lines can lower your score temporarily.
If your credit report says that you have a too-high credit ratio but you don’t have big loans and don’t carry a balance on your credit cards, check to see if it is a matter of timing. If your credit card company’s reports to the credit bureau happen to be run just before your bill’s due date, it could look like you are carrying a higher balance and have a lot of revolving debt. If this is the case, the fix is simple. Just find out what date your credit card company reports your balance and make your monthly credit card payment before that date.
Pro Tip: Making an early payment for a credit card that reports just before your balance due date may only be worthwhile when you know that you are going to apply for a loan and you want a boost to the credit ratio portion of your score for that application.
Your payment history makes up over a third of your credit score, so any late payments or bills that were turned over to collection agencies will impact your score a lot.
But what if you have bills that are already in collections? Try to pay those bills as quickly as possible, and when you do so, ask the lender to remove the collection report from your credit file. Many lenders will do so upon request if you pay the amount you owe in full.
Pro Tip: FICO scores no longer includes late medical payments that have been paid off, so if any of your overdue bills are for medical expenses, paying them off should remove them from consideration when calculating your FICO credit score.
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Pam Leibfried is a marketing content specialist whose love of words led to a writing and editing career. After a brief stint teaching English, she transitioned to corporate communications and spent 20 years at The Nielsen Company before joining Alliant’s content development team. Early in her work life, Pam’s friend Matt explained the benefits of a 401(k) and her dad encouraged her to start a Roth IRA. Their good counsel prompted her to prioritize retirement savings, which just might enable her to retire early so she can read more and live out the slogan on her fave T-shirt: “I have a retirement plan: I plan on quilting.”