In a previous article we explained how credit scores are calculated,what causes them to increase, decrease, or stay the same and out how to easily fix mistakes on your credit report. If your scores is still too low for a home loan, or you simply want to increase your credit score, there a few things you can do.
The good news is that everyone can improve their credit score. Here are few simple steps to get started:
- Pay bills on time. Paying on time has the single biggest impact on your credit score.
- Reduce your credit card balances. Reducing your credit card balances means not only regular payment and not accumulating more credit card debt, it also includes paying off debt rather than moving it between credit cards. Moving between cards can have a double negative impact as it keeps your debt level high and shows a more new credit. Apply for new accounts only when you need them. Many stores offer a discount if your apply for, and use their card, but accumulating new credit can be a drain on your score. Only apply if there is a significant advantage (a large purchase—a new refrigerator, for example).
- Get your credit report and check it for errors. Staying on top of your credit score, and report, is good practice and can be particularly important if you have had errors in the past or if you have a common name. There are a lot of “Bob Smiths” out there, and they may not all have stellar credit.
What can I do if I have bad credit?
If you have bad credit, you can change your credit situation but you might need help to guide you through the process. It is important to conduct your due diligence in terms of who you use to help you with credit repair. According to the Federal Trade Commission they advise the following:
Everyday, companies target consumers who have poor credit histories with promises to clean up their credit report so they can get a car loan, a home mortgage, insurance, or even a job once they pay them a fee for the service. The truth is, these companies can’t deliver an improved credit report for you using the tactics they promote. It’s illegal: No one can remove accurate negative information from your credit report. So after you pay them hundreds or thousands of dollars in fees, you’re left with the same credit report and someone else has your money.
If you see a credit repair offer, here’s how to tell if the company behind it is reputable and can truly help you fix your credit:
- The company wants you to pay for credit repair services before they provide any services. Under the Credit Repair Organizations Act, credit repair companies cannot require you to pay until they have completed the services they have promised.
- The company advises you of your rights and what you can do for yourself for free.
- The company recommends that you do not contact any of the three major national credit reporting companies directly.
- The company tells you they can get rid of most or all the negative credit information in your credit report – even if that information is accurate and current.
- The company suggests that you try to invent a “new” credit identity — and then, a new credit report — by applying for an Employer Identification Number to use instead of your Social Security number.
- The company advises you to dispute all the information in your credit report, regardless of its accuracy or timeliness.
The best way to find help is to ask around — any mortgage or real estate expert should be able to give you a list of referrals that specialize in credit repair services.
In conclusion, your credit score is a key component in the ability to borrow money and should not be taken for granted. Regardless of whether you are looking to purchase a home now, or in the future, monitoring and understanding your credit is a prudent financial practice. If you have good credit, continuing to pay on time and use credit wisely will keep you in good standing. If you have work to be done, don’t stress, with a little work and some with credit repair you are on your way to changing your credit score and ultimately your financial situation.