How to improve credit score may seem like a question with a simple answer. Consumers often find it difficult to fathom that three simple numbers can have so much control over their financial lives. The fact is, your credit score can be a determining factor in whether you are eligible for a credit card, can obtain a mortgage or car loan, and may also be used when determining how much you will pay for insurance. Here are some of the steps you can take to improve credit score and improve your chances to qualify for a loan with a better interest rate.
Check Credit Reports for Accuracy
Most consumers assume their credit reports contain only accurate information. However, mistakes do occur on credit reports due to slow information, lack of reporting, and in some cases of mistaken identity due to two people having similar or identical names. Yes, that really happens. You should get a copy of your credit report and review it for accuracy as the first step when you are trying to determine how to improve credit score.
Once you have identified any errors, you should write to the creditor and copy the credit bureau on the letter to ensure they know you are disputing the accuracy of a debt or item on your report. You should also make sure your creditors are reporting your debt and payments, that personal information is accurate and review credit inquiries to make sure there are no unauthorized inquiries into your credit. You may also want to verify that “old” debts that are reflected on your credit report are within the statutes of limitations. Every state has different limits on how long bad debt may be reported and if there are debts that are “old” you may be able to have them removed.
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Aged Debts Which Continue to Show Up on Credit Reports
One of the common errors you will find on a credit report is those debts which exceed the statutes of limitations in your state. Depending on where you live, this can be a period of between five and ten years from the date of your last payment. Old debts which have had no activity for a period exceeding the statutes of limitations can lower your credit score. When you are searching for how to improve credit score, correcting credit reporting errors is one of the easiest ways to get a boost. Consumers are protected by the Fair Credit Reporting Act (FCRA) and this act governs how long negative information may be reported.
Remember that if you have a charged-off account it may have been sold to another company. This does not change the statutes of limitations in most cases, the agency which purchased the debt may not continue to collect on it nor report it as bad debt past the statutes of limitations in your state.
Identify How To Improve Credit Score
There are several factors which make up your credit score including how much of your available credit you are using, how often and how much credit you have applied for in recent months, your payment history and how long you have maintained your credit lines.
When determining how to improve credit score start by catching up on late payments, avoiding applying for new credit, using less of your available credit and avoiding paying off your “oldest” credit lines. Remember, the older a credit line, the more “valuable” it is in calculating your credit score.
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Developing a Credit Score Improvement Plan
When trying to figure out how to improve credit score, there are some specific steps you can take, even if you have found no errors on your credit report. The secret is to improve upon your current report and avoiding any negative marks against you for the near future. Here are some solid steps you can take to start improving your credit score today.
- Step One: Automate Payments — since the most significant part of your credit score is how regularly you meet payment obligations when you are trying to figure out how to improve credit score automate your minimum monthly payments. This means your payments will automatically be deducted from your bank account and you have a lower risk of late payments.
- Step Two: Limit new Credit Lines — try to avoid opening new credit lines when you are trying to improve credit score. Remember, another factor which could lower your credit score is new inquiries on your credit report. Use the credit you have wisely and avoid taking on new debt unless it is necessary to offset accounts in collection, or because you do not have any existing credit.
- Step Three: New Blend of Debts — if you do not currently have any open lines of credit, you may wish to consider getting a new credit card. If you have a very low credit score, a secured credit card may be an option for you. A secured credit card is usually limited to the amount you have placed in a savings account which the bank would then use to pay the balance in the event of default.
- Step Four: Understand Credit Utilization — if you have existing credit cards and credit lines, pay down the highest balances first if you can. Remember, the less of your available credit you are using, the lower your credit utilization. Lower credit utilization generally means a higher credit score.
If your long-term goal is to buy a home, or fund educational expenses for you or your child, the higher your credit score the better terms you are likely to be offered on a new loan. Taking the necessary steps how to improve credit score today will help you improve your financial future.