If you’re looking to buy a house this year, you’ll need to raise your credit score. Even a few points can make the difference between getting a low interest rate or one that will take up all your cash for years to come. While getting rid of legitimate negative information can be tricky, there are a few things you can do to cleanup your credit report and boost your score.
Order your credit reports. Each of the major credit bureaus has its own website where you can download a report. The Federal Fair Credit Reporting Act gives you the right to request one free report every twelve months from TransUnion, Experian, and Equifax. To get your free reports, visit AnnualCreditReport.com (see Resources). If you’ve already requested your free reports for the year, you’ll have to buy your reports from the individual bureaus.
Review each report for errors. Don’t just glance over the report to see if you recognize the names of all your creditors. Instead, look at each listing individually. Are those balances correct? Are the credit limits accurate? If you find errors or have questions, you can dispute the information through the issuing credit bureau’s website or by mail. Get that bad information off your reports and you’ll see your credit score rise.
Pay off your balances, or at least reduce them. About 30 percent of your credit score is based on “utilization of credit.” In other words, a big chunk of your credit score is based on how high your balances are compared to your credit limits. Get those balances under 20 to 30 percent of your card limits and keep them there. This may be the single most effective thing you can do on your own to improve your score.
Resist the urge to cancel old accounts, even if you don’t use them. At least 15 percent of your score is based on your credit history. The older your accounts are, the better it is for your score. Moreover, those old accounts raise your total credit limit, which improves your utilization factor.
Request goodwill deletions. This can be tricky, but if you made some late payments on accounts you still have, contact your creditors. If you have an otherwise good record with them, ask them to delete the negative information. They don’t have to do this, but some will just to stay in your good graces.
Lainie Petersen writes about business, real estate and personal finance, drawing on 25 years experience in publishing and education. Petersen's work appears in Money Crashers, Selling to the Masses, and in Walmart News Now, a blog for Walmart suppliers. She holds a master's degree in library science from Dominican University.