Friday, October 9, 2009

3 Steps to Higher Credit Scores

Credit scores have always been important and they are becoming even more important than ever before. We all know that lenders and creditors use your credit score to decide whether or not to give you a loan or a revolving charge card. In fact these same decision makers use your credit score to determine what interest rate you’ll receive should they decide to extend the financing to you.

Did you know that your credit score could keep you from getting an apartment or a rental home? It could also prevent you from landing that new job. Landlords and employers are making much wider use of an applicant’s credit score to determine whether or not to make that lease or offer that job. So, how does one go about improving their credit scores?

First, pull your credit reports. Once each year everyone is allowed to pull all three of their credit reports (Transunion, Experian, Equifax) from This is a free site. There are businesses with sound alike names trying to sell you a service or products all the while offering you a free credit report that you may obtain for free, so a bit of care is advisable.

Once you have your credit reports, go through them carefully looking for serious errors. A serious error is not an incorrect or misspelled address, an old or incorrect employer, or a slight misspelling of your name, or a variation of your name. Instead, examine the past seven years for accounts that are not yours. These accounts could be negatively impacting your scores. Also look for inaccurate late payments or defaults. These are definitely harming your credit scores. Lastly, look for the number of inquiries. These may or may not be harmful to your scores, but it’s also a good idea to see who is checking your credit, or who is checking up on you.

If you find serious mistakes it’s time to take action. Dispute them with the specific bureau on which they appear. Write letters making reference to specific creditors; make the letter as clear as possible. The individual bureaus will notify the creditor/lender of your dispute and wait for their response. If they do not respond within a reasonable amount of days, the bureaus will correct your report and your scores should improve.

Sometimes creditors respond to the bureaus that the report is accurate. In this case (and if you still challenge the veracity of the report) you may need the services of an attorney. A $200 letter is definitely cheaper than thousands in higher interest payments.

Second, evaluate how you are using your credit cards. The rule of thumb is to keep balances well below the maximum limits. A better rule is to keep balances below 30% and to see maximum score improvement, keep balances below 10%. Also it is good to note that the credit bureaus do not give extra points for paying off a credit card balance every month. Their evaluation is based on a comparison of balance between the previous month and the current month.

Third, closing accounts can really damage your scores. It is best to leave all accounts opened and in place until you get your credit scores where you want them. After that you can begin closing accounts; but even then it’s a good idea to close them one at a time and to wait several months before closing the next account.

While trying to improve your scores, don’t open new accounts. Each time you open an account you risk damaging your scores. It is best to wait until you get the financing you want, or your scores are where you want them to be before opening any new accounts. Of course if you have no accounts and you are trying to improve your scores, opening new accounts makes sense.

Boosting your credit scores is not impossible, but it does require some strategic thinking, planning and steps of action. And the earlier you begin, the quicker you’ll be able to take advantage of the benefits higher scores will bring your way.

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