Before applying for a loan, mortgage or charge card, you must take steps to improve your credit rating. Here's how to fix your credit history, remove credit report errors and boost your credit score.
If you're planning to refinance your mortgage or apply for new credit, raising your credit score is extremely important. A low credit score not only reduces the likelihood of getting lender approval, it also dramatically increases the cost of borrowing money. How do you increase your credit score more quickly? Well, it involves a combination of cleaning your credit report of any errors and taking proactive steps to influence the long term factors that are damaging your credit worthiness.
Repairing Your Credit Report by Fixing Errors
U.S. PIRG, advocates of consumer protection, stated that 79% of all reports contained some incorrect information. More worrying, 25% of those mistakes were deemed to be serious. Under the Fair Credit Reporting Act (FCRA), you are given the legal right to get any erroneous data corrected.
It's important that you check the information that's held by Experian, Equifax and TransUnion. Although it's natural to assume that credit reference agencies work together, this isn't actually the case. The data held is completely separate and unique, so you need to contact each agency in turn.
It's essential that you provide the appropriate supporting information. For example, if a debt was written-off as part of your bankruptcy, you'll need to include a copy of the agreement. Although you're sending this information by registered mail, always send a copy and not the original.
Once you've sent this information off, credit reference agencies have 30 days to act upon it. This doesn't mean that the matter will be resolved within this timeframe, so allow sufficient time for any mistakes to removed. Fixing errors won't happen overnight.
How Do You Increase Your Credit Score?
Repairing your credit report requires at least one form of both installment and revolving debt. If you have credit problems, you should consider a small loan from a credit union and a secured credit card. Provided that you make the repayments punctually, you'll receive a welcome credit score boost with each passing month.
You should avoid maxing-out any of your cards. In fact, it's better if you don't use more than 30% of your credit limit on any card in a single month. There's a strong temptation to use your favorite card for all of your transactions, but this will have a negative impact on your credit distribution.
If you have old credit and store cards that are obsolete, it's very tempting to close them down. However, this will normally cause a credit score drop. Consider using them to make a few small purchases each month, and remember to settle the balance in full.
Interest-free balance transfers are a great way of avoiding the payment of interest. However, this practice has the potential to damage your score. If you want to improve your credit rating, it's inadvisable to transfer your balance from a high to a low limit card.
If you have both savings and debt, use the money you have in the bank to pay down debt. Too much debt relative to your credit limit is seen as a warning sign by lenders. The more stretched you are financially, the harder it is to make the repayments.