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Improving Your Credit Score

You’ve checked your credit score and found it to be less than stellar. The problem is, you will soon be in the market to buy a new home or new car. You’ve got to take steps to improve your score or you risk paying higher interest rates or even worse, not qualifying at all. Credit scores are used by lenders to indicate a person’s credit worthiness. The most widely used formula to calculate credit worthiness is the FICO score developed by Fair Isaacs & Co. This formula is used by most lenders of large loans.

If your credit score is not perfect, hope is not lost. The following are five ways you can improve your score and your chances of getting the loan you want.

Check your credit reports and scores.

Surveys have shown that many people do not check their credit reports regularly and many do not know what their credit score is. Changes in the Fair Reporting Credit Act (FRCA) now allow for all consumers to view a free annual credit report from all three of the major credit reporting agencies. Pull your credit reports regularly to see where you stand. Often your credit report contains erroneous information that can be contributing to lower scores.

Correct incorrect information.

It’s hard enough keeping correct credit information straight. You don’t need inaccurate information weighing you down. Check the accuracy of all personal information as well as payment reporting information. Federal law mandates that credit reporting agencies and those providing the information have an obligation to correct information in your report that is inaccurate or incomplete. Send letters to both the agency and referring business notifying them of errors. The credit reporting agency has 30 days to investigate and correct the errors. If they do not update your file with accurate information, the error must be omitted.

Make timely payments.

The best way to show lenders that you are on the straight and narrow path of responsibility is to pay your bills on time. Late payments seriously impair your credit score and the delinquency will remain on your report for at least seven years.

Pay down your balances.

One great way to give your credit score a boost is to pay down your high balances. Long standing high balances can really zap your score. Outstanding debt accounts for 30% of our FICO score. It is recommended that balances stay at round 25% of your credit limit. This assures lenders that you are not tinkering on the edge of default and have the resources to maintain your accounts.

Do not close accounts with good history.

While it’s important to pay down credit balances, you do not however want to close any long standing accounts with good histories. This can actually have a deleterious effect. You want lenders to recognize your long record of good payment. If you close these accounts, they will roll off of your reports after seven years, thus eliminating your impressive payment history. Instead of closing these accounts, pay them down and use them every so often to continue to show an active account in good standing.

Steve Baik




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