Maintaining a Positive Credit Standing
Think having a good credit score is hard? Not really – it just involves following a few simple habits:
- Always pay on time – Remember, your payment history makes up the largest chunk of your credit score.
- Pay down existing debt – Even if you have never missed a payment, a large debt load will lower your score. Explore ways you can lower your interest rates and free up cash to make more than the minimum payments.
- Avoid taking on additional debt – Besides paying down existing debt, make an effort to not take on more debt in the future. For revolving credit, ideally you should not charge more than you can pay off in full the next month, but at the very least, try to keep the balance well under half of the credit limit.
- Pay collection accounts – Paying collection accounts shows that you are willing to take responsibility for past missteps. Request payment arrangements for balances you can’t afford to pay in full or settle, and make sure to confirm the agreements in writing.
- Keep your old accounts – A long credit history with the same accounts indicates stability.
- Avoid frequent balance transfers – While transferring balances to “teaser rate” cards can be a way to efficiently get out of debt, it can also have a detrimental effect on your credit score. The accounts will be new and likely have balances close to the limit to maximize the advantage of the low rate – two factors that lower your score.
- Avoid excess credit applications – Each time you apply for credit, your score decreases just a bit. If you do it frequently, a creditor may see it as a sign that you need to rely on credit to pay your bills.
Establish or Reestablish Credit
Whether you have never had credit before or all of your accounts were closed due to past problems, you can establish or reestablish credit by:
- Obtaining a secured credit card – Many financial institutions will issue you a credit card if you put a specified dollar amount on deposit with them. If you stop making payments, the creditor will deduct the amount you owe from your deposit. However, if you make on-time payments for a year or two, the creditor may be willing to release the deposit and grant you an unsecured card.
- Asking someone with good credit to co-sign – Another option is to have a friend or family member who has a good credit history co-sign on a loan or credit card for you. Be especially careful with this type of arrangement – any late payments you make will not only reflect poorly on your credit report but your co-signer’s as well. After a year or so, you may want to apply for credit on your own.
Correct Inaccurate Information
Many credit reports contain mistakes. Common causes of inaccuracies include mistaken identity, old information not being dropped from the report on time, and identity theft. If you see an error on your report, you can correct it:
- Dispute the information with the credit bureau – Send a letter to the credit bureau or fill out an on-line dispute form letting them know what information is incorrect. While you are not required to provide documentation to support your claim, if you have any, such as a canceled check for a bill that still shows as outstanding, it helps to include it. The Fair Credit Reporting Act requires credit bureaus to investigate all disputes, unless they are frivolous, and respond within 30 days. While the bureau is doing research, they must report that the item is being disputed on your credit report. The credit bureau must delete the disputed information if they cannot find evidence to validate it and, if you request it, notify anyone who recently received the report of the change.
- Dispute the information with the creditor – If the credit bureau’s investigation results in no change to your report and you believe the information is still inaccurate, contact the creditor directly to see if they will remove the information from your credit report and request documentation of the debt. If they cannot provide it, let the credit bureau know – only verifiable debts can be reported.
- Add a statement to your report – If contacting the credit bureau and creditor does not resolve the dispute, you can add a brief statement (100 words or less) to your credit report. Adding a statement will not affect your score, but anyone who pulls your report will know your side of the story.
Beware Credit Repair
Some companies claim to “repair” credit reports, often for a very high fee. At best, the company is charging you for something you can do yourself for free – writing a letter to the creditor bureaus disputing inaccurate information. At worst, the company is engaging is dishonest and/or illegal tactics.
Credit repair companies frequently operate by flooding the credit bureaus with letters that dispute negative, but accurate, information. If they are unable to investigate the claims within 30 days, the information is removed. The company then shows you a cleaned-up report. This rarely works, though. Even if the credit bureaus are backlogged with disputes, they will eventually get to your claims and just reinsert the negative information when they verify that it is accurate.
Another common tactic credit repair agencies use is to issue consumers a new identity, complete with a stolen or new Social Security number or tax identification number to use in place of a Social Security number. This is an illegal practice for which the consumer often ends up paying the price. Remember, there is no legal way to remove accurate and timely information from your credit report.