If you are looking to take out a loan or apply for a credit card, then it will be very important for you to have a good credit score, which is often referred to as your FICO score. After all, the better your credit score, the more likely you will be granted credit and the better the terms you are likely to be offered for a loan or credit account. Even if you think your credit score is high enough, there are likely to be ways you can make it even better.
First things first, no matter how bad your credit score really is, there is always something you can do on your own to make it better, and you can make these changes on your own. There are a lot of companies out there that offer help in this area, but anything legal they offer to do for you, you can do yourself. Not only can you save yourself the fees these companies will charge you, you can take personal control of your financial destiny! Just keep in mind that it will take some time, rebuilding your credit rating is something that doesn't happen overnight.
- The first thing you should do is assess the damage by looking at a current credit report issued from one (or all) of the three major credit reporting agencies: Equifax, TransUnion and Experian. Under the Fair and Accurate Credit Transactions Act, every American has the legal right to receive one free credit report from each one of the companies per year, which will save you some money on processing fees. Check over your credit report with a fine-toothed comb... if something seems incorrect or you are not sure of any items on your credit report, then it is your right to contact the agency and ask for them to investigate and verify any unusual items.
- Pay special attention to any recent inquiries that you did not authorize. Before a creditor approves you, or someone pretending to be you, for an account, they will make an inquiry which will be noted on your credit report. If there are inquiries that you did not authorize, notify the credit bureau immediately.
- Checking your credit report on a periodic basis, at least annually, is a good way to catch any instances where you might be the target of identity theft. By reviewing your credit report periodically, you can lower the impact that any identity fraud may have on your credit report and possibly catch it before it becomes a problem. If you are concerned about others accessing your credit report without your permission, you can freeze your credit report, which will limit who and under what circumstances can access your credit report. If you think you are a victim of identity theft, contact your local law enforcement authority immediately.
- Once you know what you have to work with, make sure that all of your accounts are current, and up to date. Forgot to pay the credit card bill last month? Well, this will go on your credit report and lower your credit rating. The longer and more often you do not make bill payments on time, the lower your credit rating will become. If you are having troubles paying some of your bills in a timely fashion, then maybe debt consolidation is right for you. (To read more about debt consolidation, see Digging Out Of Personal Debt.) The important thing to remember here is that keeping your bills current, paying them on time, and doing this consistently will cause your credit rating to rise over time.
- Also, become aggressive with your payment plan. Pay bills off early if you can, and make sure you do not miss any more payments. The longer you can do this, the better your credit rating will become. If you have a credit card, but you have paid it off, then keep the account open, but do not keep your credit card: cut it up. By keeping your account open and in good standing, the credit card company will report to the credit bureau that you have a good history with them, which will increase your credit rating. Not only is paying your bills on time important, but so are paying off your debts.
The number of credit accounts you have open are also important to control. Credit lending institutions will look at the total amount of credit room you have available to you. If you have 10 credit card accounts, and you have $5,000 of credit room available in each account, then that will amount to a total of $50,000 in potential credit! Lenders will take a look at this potential debt load before considering how much they will lend you. They count the full amount against you, as if you were to go out and max all your cards tomorrow. If you are applying for a large loan (perhaps for a car or house) these limits could work against you regardless if you have a full limit or not. If you are heading to get a larger loan, pay off as many of these as you can and close some of these accounts. A good idea would be to keep three to four credit card accounts open, but only use one or two of them. Furthermore, when you do use them, pay them off before you get a notice in the mail, and pay them off in full.
Remember, it will take some time before you can rebuild your credit rating, but it can be done. Paying off your debts on time and keeping a small number of accounts open are some methods to build a good credit history. The longer you do this, the better your credit rating will become! It is up to you to take control of your financial destiny!
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