Who's Minding Your Money?

Five ways to improve your credit NOW!

I recently downloaded a copy of both mine and my wife’s credit report just to make sure everything was in order. Since the passing of the Fair Credit Reporting Act in 2005, individuals are eligible to receive one free copy of their credit report from the three major credit-reporting bureaus. I make it a point to download and check both of our credit reports three times a year free. How is that possible you may be asking?

There are three major credit-reporting agencies and they are Experian, Equifax, and TransUnion. Each agency keeps information about your credit history. Some of the companies you currently do business with reports to all of these agencies and others only report to one .That is why it is important that you check each one annually. Now, getting back to how I am able to check our credit three times per year free.

Here is my strategy, I check both of our reports once every four months from one of the three reporting agencies. In other words, I will check our reports from Experian in January then check our report from Equifax in May and, finally check our reports from TransUnion in September. By doing this, I am able to stay on top of what is going on with our credit. I will admit that since we have both sworn off using credit nothing much changes from year to year. It’s just good to check because Identity theft is one of the fastest growing crimes in America. (Next month’s blog)

This month I wanted to share five tips on how to improve your credit score by simply changing your habits and the way you currently do things. When it comes to improving your score, the first thing that you have to remember is that your score changes as often as your report does. Since most creditors report information to the credit reporting agencies monthly, it is safe to say that your score could change monthly.

To improve your score the first thing that you must do is to be patient. Let time work to your benefit. Debt created over time takes awhile to fall off especially if you are still using the account. This process could feel like watching paint dry but if you are consistent with following healthy credit habits your score will change and probably faster than you think.

Fix all errors on your credit report immediately

One survey reported that some 52% of individuals surveyed reported at least one major error on their credit report. You definitely want to fix any area on your credit report that has errors. You can get a free copy of your report by going to the following website www.annualcreditreport.com  you now have the right to get a copy of your reports once per year, so get a copy of your reports and check them for errors and dispute any errors.

Pay your bills on time

The largest percent of your credit score (35%) is based on your payment history. You want to build a strong payment history to get your score higher. The longer you go without any late pays the higher your score will be. This is the best and fastest way to rebuild your credit. Having one 30-day late payment could decrease your score as much as 20 points. Even if you have had credit problems in the past depending on the size of the debt and how many creditors you have, a good 12 months of continuous payments on time could get you back on track very quickly.

Back away from the edge

Reducing your credit card balances will have a noticeable impact on your credit score. The next largest percent of your score (30%) is based on the amount owed to creditors. You never want to max out your credit limit; in fact, you want to get the balance below 50% of your credit limit. Therefore, if you have a card with a $3,000 limit you want the balance to be below the $1,500 mark. By spreading your debt between all of your cards so that you are below 50% of the limit will help improve your score.

Also, pay off your debts rather than moving them around. Playing the credit card shell game does not improve your score. Be careful when you are closing accounts you could be reducing your overall available credit which combined with being close to the limit on other cards will negatively affect your score.

Commit, Commit and Commit

Often time it is natural to want to close old accounts but keep in mind that 15% of your score is determined by the length of time you’ve held credit relationships. Opening new cards and closing old ones could affect your credit negatively in the short run. So maintaining a long-term healthy relationship with your creditors will serve you better in the end. Now that you have credit, you want to keep a couple cards to develop a history and only use them occasionally.

Look Before You Leap

The last thing that you can do to improve your credit score is to check your credit at least six months in advance before applying for credit. Before you ask, checking your credit doesn’t hurt your score. Even though new credit only makes up a small percent of your score, 10%, you still want to manage this portion of your credit score.

Every time you apply for credit, it will have an impact on your score. However, there are some things that you can do to minimize the effect of shopping for credit. Though every hit will count against you the FICO scoring model tends to ignore mortgages and auto loans that are generated with a 30-day period. Additionally, inquires made within a 14-day period will count as one inquiry.

Remember, in times of crisis your credit could be one of your most powerful tools. Not only does everyday life hinge on you having good credit...but also your future success depends on you having good credit. Since you have already created a history of having credit then you must do everything you can to maintain a good credit history.

This article was written by Lonnie R. Mathews for the Who's Minding Your Money blog. Lonnie is an author and speaker in the area of personal finance. To learn more about Lonnie or to contact him visit www.lonniemathews.com