Ways to Improve a Credit Report Score

Benefits of a high score

A good credit report number, often called a FICO score, makes life a lot easier for consumers. Establishing a high score on a credit report is the key to receiving lower interest rates on loans, to being approved for insurance policies, to securing employment, to finding rental property, etc. Scores will range from a low of 300 to a high of 850, with scores above 750 deemed the most desirable. Scores below 650 are the dividing line between prime and subprime rates.  All consumers with credit history will have information in the report on where they live, how timely they are in paying bills, plus information on whether they have been sued or arrested, or filed for bankruptcy. After gathering the data, credit reporting companies sell the information to interested parties who have a valid need for it.

Obtain a credit report

If individuals want to improve their scores, they must first find out what is on their reports. Consumers have the right to the information in their credit report under the Fair Credit Reporting Act, but they must request it. A free report can be received yearly from each of the three reporting agencies—TransUnion, Equifax, and Experian.  Charges apply for additional reports . The reporting agency must disclose everything in the report from the last year or the last two years if the request is related to employment. Credit reports can be ordered at the website annualcreditreport.com, or by calling 1-877-322-8228, or by sending requests to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

Reduce balances on credit cards

Paying down the balances on credit cards can help a credit score more than paying off installment loans, such as car, mortgage, or student loans. Creditors look for large gaps between the amount of credit a consumer is using and his or her available credit limits. If the balance is below 30%  of the credit limit on all charge cards, this can help raise the credit score. Many financial advisors  recommend paying off the highest-rate cards first, but if the goal is to raise the credit score, paying down the cards that are near their limits may be a better option.

Check the card limits

Credit card limits can lower scores if the issuer is showing a lower limit than the actual stated one. Limits are often increased, and sometimes the information is not updated on the report. If asked, credit card issuers are usually very responsive to updating the account information. However, American Express does not report their card limits, and reporting companies will usually use the highest balance as an alternative for the limit.

Ease up on charges

Hefty charges to credit cards can lower credit scores. Because credit balances are added into the credit score each month, the fact that they can be paid off each billing period is the not the important issue. Although, paying off the balances each month is still a wise way to handle one’s finances. Credit scores can be increased by limiting charges to 30% or under of a credit card’s  limit. Personal finance software and creditors’ websites for accounts can help consumers keep track of their spending to stay within these limits.

Dispute old items

The consumer needs to have old negative items taken off of the credit report. If old account information in regards to collection agencies is appearing on the credit report, the consumer can dispute the information with the credit reporting bureaus. The older and smaller the amount claimed, the more likely the collection agency will not bother to verify it when the credit reporting agency investigates.

If a creditor has merged or undergone major changes, often their records will not reflect old account information. This can be beneficial to consumers who want to raise their credit scores. In addition, any information that is older than seven years should not be appearing on the report, and the consumer can request that it be deleted if it is there.

Contact creditors

Consumers can contact creditors to erase late payment information from their accounts. If the consumer has been a good customer and has re-established promptness in paying on accounts, creditors may as a courtesy remove old negative information. In some cases, if the consumer has made 12 on-time payments, creditors will erase previous delinquencies. Often the consumer needs to write to the creditor to ask for their goodwill, but some lenders can be cooperative over the phone.

Do not close credit accounts

It may seem counterintuitive, but consumer credit scores are not helped by closing accounts, and it usually hurts credit scores. If an account is closed, it does not matter who closed it whether it was the consumer or the creditor—negative items on the account will still be in the file.

Reference:

1. Federal Trade Commission, Building a Better Credit Report, March 2008, http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre03.shtm

2. Top 5 Credit Monitoring Services – Best Credit Monitoring, Credit Monitoring Services