Once you finally make the decision to buy a home or a car, you'll probably want to go shopping right away. If you have bad credit, slow down. To get the lowest possible interest rate, you'll need to fix your credit mess before you visit a lender. You can’t raise your credit score overnight, but you can take certain steps to get those numbers up quickly and get that major purchase out of the way.
Check Your Credit Report
It’s nice to know your credit score if you want to raise it, but it’s not necessary. It is necessary, however, to view your credit report. You can get a free copy once every year from the three major credit-reporting agencies -- TransUnion, Experian and Equifax -- from AnnualCreditReport.com. You'll have to pay extra for to see your actual score, but the report itself can show where your problem areas lie. Review your report for errors; if you find any, send a written letter asking the agency to correct the mistake. Once corrected, your score should go up.
Pay Down Credit Cards
The fastest way to raise your credit score is to pay off your credit cards, financial advisor Liz Pulliam Weston notes on MSN Money. Lenders look for a gap between the amount of credit you have available and the amount you are actually using. Keeping this gap at 30 percent of used credit and 70 percent of available credit is a good rule of thumb, says Weston. If you max out your cards, your score drops. If you have multiple credit cards, pay down the cards that are closest to their limits first, not necessarily the cards with the highest interest rates. Your goal is to lower your credit score, so in this case, available credit trumps interest rates.
Late Payments and Judgments
Do not miss any payments on any of your loans. Payment history accounts for 35 percent of your credit score. Also, if you do have an account that went to collections, pay up. Doing so won’t erase the judgment – only time can do that – but a paid judgment is better than an outstanding one.
Use Old Credit Cards
Start using old credit cards. If you have an old card that you no longer use, make some purchases on it, but only what you can pay off in a month or two months at most. Credit card issuers may not report unused cards to the credit-reporting agencies. This may make it appear as if your credit history is not as old as it really is. Length of credit history is one factor that affects your credit score. Use an old card every few months to prevent this from happening again, recommends Craig Watts of FICO to Kiplinger.
Get Your Limit Raised
If you have been a good customer, call your credit card issuer and ask to increase your credit limit. This automatically makes that gap between the credit you use and your available credit larger – that is, if you don’t use the new credit.
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