Your credit history is almost as permanent as a tattoo—or maybe more so, as tattoos can be removed and credit histories can’t! Your credit history is a record of your debt, including mortgages, car loans, credit cards and other forms of personal credit. It is used to calculate your FICO credit score, which lenders use to decide whether to give you a loan (credit). But a credit score doesn’t just affect borrowers; if you’re looking to rent an apartment, most rental agencies will look at your credit score to decide if you can be trusted to pay your rent on time.
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So let’s say you’ve got lousy credit. Or maybe you’ve got no clue whether your credit score is good or not. Here are three things you should do now to raise your credit score.
1. Request (and correct errors) in your credit report. You are entitled to a free 3-way credit report once every 12 months. The free report includes your credit history from the top 3 credit reporting agencies, Experian, TransUnion and Equifax. But probably won’t include your FICO score, which is the all-important number between 300 and 850 that determines whether your credit is good, so-so or bad news all around.
If you request a free credit report, you may notice that all three reporting agencies have some different information for you. One or more report may well contain errors—debts, negative marks or credit requests that are not yours. It’s a long process, but you must write to each credit agency whose report contains an error, and clear up the discrepancy. Once you know your credit report is accurate—it will take some time but the agencies will deleted inaccuracies—then you should pay for a credit report that includes your FICO score, and see where you stand.
2. Pay down and consolidate debt. If your credit report and score are less than stellar, it may well be because of too much credit card debt, too many open accounts, and too many small balances spread over several cards. Do yourself a favor and consolidate credit card debt onto fewer cards, and close any department store accounts, which are always higher interest. Then concentrate on paying down that remaining credit card debt as quickly as possible.
Credit card balances that are higher than 30% of your balance limit are a red flag to lenders. They show that you make impulse purchases and suggest that you spend beyond your means. Pay them down, then apply for credit.
3. Pay your bills on time. Nothing blemishes an otherwise decent credit score like a late payment or two. Even if you had the money and just forgot to pay a credit card bill on time lenders don’t care. All they see is that late payment, which to them says you didn’t have enough money on hand when the payment was due—a big red flag. If possible, set up automatic payments for all your utilities and revolving debt, so that you never miss a payment.
On the other hand, if you have a legitimate excuse for missing a payment—let’s say you or a loved one were hospitalized—you can ask the lender to forgive the late payment and strike it from your credit record. It’s a long shot, but if you get a sympathetic customer service rep on the phone, you may get lucky.