You need good credit. Without it, you won’t qualify for today’s record-breaking low interest rates. You also won’t be approved for your local car dealership’s 1% financing special. Bad credit might even place you in jeopardy of being turned down for a job or an apartment. Great credit, on the other hand, opens doors. A great credit score gives you access to a variety of financing opportunities, both business and personal.
And if your credit score isn’t what you’d like it to be, are there really any such things as “quick credit fixes?” It depends on what “quick” means to you. If you want to be approved for a loan or credit card right now and your credit isn’t good enough, you’re out of luck (at least for the moment). Your credit score is based on patterns and behaviors over time. That said, the majority of your score is based on the last two years. So if you’d like to improve your score enough to buy a home in 2013… that could happen.
1. Get – and analyze – your credit report
Obtain your credit report from AnnualCreditReport.com (this is the only site authorized to deliver your free reports each year from each of the three major credit reporting companies). Find out why your score is low. Your credit score is based on your payment history (35%), your debt utilization (30%), the length of your credit history (15%), your credit mix (10%) and inquiries (10%). So while one person’s score might be affected by late payments, another person’s score might be low because his credit cards are maxed out (even though he makes every payment on time). You cannot address your low score until you understand the reason for it.
2. Find and correct errors on your credit report
At least 20% of us will find errors of some sort on our credit reports. Although some errors don’t affect your score, like erroneous past addresses or various misspellings of your name, 5% of us have errors serious enough to affect the terms offered by creditors and lenders. Take the time to comb through your credit report and request correction of any and all inaccuracies.
The easiest way to request correction is to click on the item while viewing your credit report online. You may also request corrections in writing – and you should escalate your efforts to this level if a valid online correction request is unsuccessful.
3. Dispute negative items, especially small and old ones
If you dispute any item on your credit report, the business that reported it is obligated to respond within 30 days. If an item is old and/or small, there’s a chance the business won’t make the effort. For this reason, some experts advise that you dispute any small or old negative account, even if it’s not in error.
4. “Thin” file or no credit? Get a credit card.
If you’re just starting out or you’ve made a habit of paying cash, you might have what’s called a “thin” file (or “no credit”). It means the reporting agencies can’t assign you a score because they see no financial behavior to analyze. The quickest fix is to obtain a credit card and start using it. You may have to get a secured credit card. Shop around for the best terms and fees, and be sure the card issuer reports to the credit agencies. After six months, apply for a non-secured card.
Pay the balance every month, no matter what type of card you get.
5. Set up automatic payments for as many bills as you can
Late payments can torpedo your credit score faster than any other element of your financial behavior. To avoid missing a due date, set up automatic payments on all of your revolving debt accounts, installment accounts, and any other account you hold that is likely to be reported to the credit companies – including your utilities, cell phone and cable TV providers.
6. Get your credit limits increased
Your debt utilization ratio is the amount of debt you carry in relation to the amount of debt available to you. The best credit scores go to individuals with a debt utilization ratio of 10% of less. If you owe $5,000 on three credit cards with a combined credit limit of $15,000, your utilization is 33%. Call up each card issuer and ask them to raise your limits. If your combined limit goes up to $24,000, your ratio goes down to 21%.
7. Practice good financial habits
Live within your means. Pay down your debt and avoid new charges that you can’t pay off immediately. Leave old accounts open, and avoid applying for new credit. Negotiate with creditors whenever possible. Avoid credit-repair services. They can’t do anything you can’t do, and sometimes they do more harm than good. Use a free service like Credit Sesame or Credit Karma to periodically check your credit score, and pull your free credit reports every year to check your progress. Access one (Experian, TransUnion or Equifax) every four months to get a closer look at your progress throughout the year. If you can establish great patterns for 9-12 months, you’ll start to see a difference and your score will improve.
Kimberly Rotter is a personal finance writer in San Diego, CA. She brings nearly 20 years of practical knowledge along with a solid post-graduate education in business and marketing. You can find more of her articles on Credit Card Insider.
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Category: Money Basics