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Improve Your Credit Score on Your Own

By Edited Dec 10, 2015 0 0

Your FICO credit score is one of the most important numbers in your life. Your credit score is the basic number that is used by everyone from banks and credit cards to landlords and employers to determine how risky it would be to loan your money. Having a low score could mean getting stuck with a higher interest rate on a loan or being denied a credit card. It can also mean not getting an apartment or job. It's a scary thought that your whole life could be boiled down to just one number - but the silver lining is that you are in complete control of that number!

Your credit score is determined entirely on how you manage your credit. Many credit repair services promise to magically raise your score by hundreds of points, for a hefty fee of course. The fact is that there is nothing they can do that you can't do by yourself - for free! Here is the knowledge you need to understand your credit score, and the steps you can take to raise it.

The first thing you need to do is find out what your credit score is. Who knows, maybe your credit score is so high that you always get the best loan rates and can ignore the rest of this article, but it's probably a good idea to check first. There are services that you can try where you buy your credit score, but there are other ways to get it for free. One way is to sign up for a credit monitoring service, such as myfico.com or freecreditscore.com, on a trial basis, get your credit score and then cancel the service. You can also get a reasonable approximation of your score for free from creditkarma.com. There are no fees at creditkarma.com, but it is not exactly your FICO credit score. However, it is an accurate enough credit score to know how much you need to improve.

Now that you know your credit score, how does it compare to everyone else's? The range for credit scores is 300-850. The median score in the USA is 720, so if you are above that you are doing okay but could use some improvement. If your credit score is below 660, you really need to keep reading this article and get that credit score up. You are charged the highest interest rates and being denied credit; now is the time to raise that credit score and show the world that you are an investment and not a credit risk. If your credit score is above 780, stop reading right now and go take out some low interest loans! You are probably following all of the steps about to be described and any improvements will have little impact for you.

The next step is understanding how your credit score is calculated and what factors impact it. Your credit score is made up of the following:

1) Payment history 35%
2) Ratio of debt to credit 30%
3) Length of credit history 15%
4) Newly opened accounts and credit inquiries 10%
5) Types of credit (ex. loans, credit card etc.) 10%

The first thing to do is check your credit reports to make sure they are accurate. This will improve the payment history portion of your credit score. Nothing is better for raising your score than removing incorrect and damaging items from your credit reports. You can get your credit reports from the three credit reporting agencies (Experian, Equifax and Transunion) for free once a year at annualcreditreport.com. Once you have your reports, review all three of them to make sure all of your information is correct. If there is anything that is incorrect, you can file a report with the credit agency and they have to investigate the dispute within 30 days. The credit agencies will only remove items that are incorrect, they will not remove anything that is supposed to be on the report. Many credit repair companies say that they can get anything removed from your credit reports, but they can't. If you really did file for bankruptcy or paid something late, it cannot be taken off of your report.

The next thing to look for on your reports is if there are any outstanding collections. These will drastically lower your score and need to be taken care of. The best way to do this is to contact the collection agency and send them a 'pay for deletion' letter. What this does is tell them that you will pay what you owe only if they remove the collection from your credit report. This is important. If you just pay the balance without a 'pay for deletion' demand, then the collection will still stay on your report lowering your credit score.

Now that you have cleaned up your payment history, it is time to work on the next largest factor for figuring your credit score, the ratio of debt to credit. The easiest way to do this, if you have the means, is to simply pay off any debts that you can. This immediately lowers your debt while keeping your credit limits the same and improves your debt to credit ratio. Another thing you can do if all of your debt balance is from one source such as a credit card is to spread your credit card debt to several cards instead of just one. This makes it appear as if you have a lower debt to credit ratio because the credit score looks at each one individually. If you have one credit card with a high balance, close to the limit, it lowers your score more than if you have several cards with low balances compared to their credit limits. An important thing to remember is not to open up new accounts just to transfer balances because newly opened accounts and credit inquiries will also lower your score.

The best way to raise your credit score is to give it time. Recent items on your credit report affect your credit score more than older items, so everything will improve with time. Even something as damaging to your credit score as filing for bankruptcy will be taken off after seven years. But this time has to be spent actively being a good borrower. This should be spent paying your bills promptly, growing your credit history and free from opening new accounts. The best way to make sure your bills are paid on time is to set up automatic payments between your bank and all of your debt sources. You should spend this time growing a positive credit history with your existing accounts. Don't close any accounts because this will lower your credit limits and raise your debt to credit ratios. At the same time, don't open any new accounts unless absolutely necessary because new accounts and inquiries also lower your credit score.

There you have it, everything you need to know about your credit score and how to improve it by yourself. Remember, your credit score is YOUR credit score! You control it, you have the power to make it better and you will benefit from getting it as high as possible.



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