It's fairly simple to determine what factors are lowering your credit scores using free information you can get online. Credit reports are easy to obtain, free and give you the exact reasons that are adversely affecting your score. Once you know what's damaging your credit, you can take steps to begin raising your score.
The first step in improving your credit score is to find out what's lowering it. You can obtain a copy of your credit report free, every 12 months, from the three main credit reporting agencies, Equifax, TransUnion and Experian. You can visit each company's website, call or write them and follow the steps to get your free credit report. Or go to Annualcreditreport.com to obtain all three reports at once for free. There are many commercial entities that offer to sell you credit reports and scores, but Annualcreditreport.com is the official site created by the three major credit reporting companies to help consumers.
Reading Your Reports
It's important to make sure all of the information on your credit report is accurate because incorrect information can lower your score. Your reports will contain personal information, including your name, address and previous employers. It will contain information on current and past credit accounts you've had, including car loans, credit cards, store accounts and student loans. It will also list information on any liens, bankruptcies, collections or garnishments you have.
Correct Derogatory Information
Any incorrect information on your credit report can hurt your credit score. If you find any false information, contact the credit reporting agency following the steps provided at the website. Examples of false information might include a collection against you that doesn't exist or a late or missed payment that never happened. If you cannot prove that you did not miss a payment or pay late, the information from the lender might not be removed from your credit report, but you will be able to leave a reply or explanation for potential lenders to read.
Improve Debt Ratios
One of the factors that lowers credit scores is the percentage amount of debt you have in comparison to the amount of credit you have available. If you have $5,000 in credit available and have used $4,000, this is worse than if you have $7,000 in charges but $15,000 in available credit. In the first scenario, you have used 80 percent of your credit, in the second, you have used less than 50 percent. If you are using credit cards to earn points or because they have low interest rates, this may raise your score and make it difficult for you to obtain credit later, such as a mortgage or car loan.
If you have too few installment credit accounts, which include a car loan, mortgage or student loan, this can lower your credit score. While this may not make sense at first glance, an installment account tells creditors someone found you creditworthy enough to lend you money upfront and that you are making your payments.
Pay on Time
Late or missed payments hurt your credit score. Make sure you schedule payments early, especially if you are paying by mail, and check before payment due dates to see if your payment has arrived. "I swear I mailed it!" doesn't fix the damage done to your credit score by late payments.
Opening and closing accounts frequently can damage your credit. Lenders like to see that you have long-term accounts. Don't close a credit card with a high rate of interest; pay it down and leave the account open to keep that long-term, good credit history.
Each time you apply for credit, a lender looks at your credit report. This alerts other lenders to the fact that you are looking for credit and lowers your score. Don't apply for credit unless you need it.
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