FICO® Impact

Author: Ryann Cairns

Improving your credit can be a difficult process but it is important to take the time and expend the energy to improve your credit score as much as possible. Your credit report and your credit score go a long way toward determining the interest rate you can get on such things as car loans, personal loans and home mortgage loans. Since even a small difference in your interest rate can save you hundreds of dollars over the life of the loan, achieving the best possible interest rate is vital to your long term financial well being.

In the United States, there are three major credit-reporting agencies, TransUnion, Equifax and Experian. Almost all credit report requests will flow to one of these three agencies. It is not at all unusual for the credit report and credit score of a single consumer to differ significantly from agency to agency. That is because each agency will gather and report its own information about your payment history.

The first step towards improving your credit rating and credit score is to obtain a copy of your credit report from all three of the major credit-reporting agencies. You can do that by contacting the companies directly, either by phone or on their web sites. A new law passed in the United States entitles every consumer to one free copy of their credit report each calendar year. The major focus of this law was the fight against the growing problem of identity theft, but it can help you to improve your credit as well. This law is being rolled out across the country by region, so contact the credit-reporting agencies to see when you can get this valuable freebie.

Of course you are also entitled to a free copy of your credit report if you have recently been denied credit for any reason. Even if you have to pay a small fee to obtain a copy of your credit report, the knowledge you gain, and the help it will be in improving your credit, will make it worth your while. Whether you pay for your credit report or obtain it for free, it is always best to deal with the credit-reporting agency directly.

Beware of the web sites and emails offering you access to your credit report and credit score. You can obtain the same information at a much lower price by dealing directly with the agencies. Once you have copies of your three credit-reports in hand, it is time to examine them carefully for errors.

It has been estimated that as many as half of all credit reports contain at least one error, so the chances that you will uncover such an issue on your own report are rather high. Any error on your credit report should be taken seriously and reported to the credit-reporting agency immediately. An error in your credit report can cost you valuable points on your credit score and cause the interest rates on your loans to be higher than necessary.

After you have reported any errors you find, be sure to follow up in a month or two to make sure the errors have been corrected. Be sure to pull another copy of your credit report and make sure the errors have been removed. Hopefully you will see an improvement in your overall credit score as well.

When seeking ways to improve your credit report and credit score, it helps to know a little bit about how the credit score is calculated. Credit-reporting agencies put a lot of weight on the age of your revolving credit accounts, like credit cards. If you have a credit card that you have had for many years, even if you no longer use it, you may want to think twice about closing it. Your long history with the issuing bank is a mark in your favor, and closing that account could actually cause a drop in your score.

Likewise, lenders look at the amount of your outstanding debt as a percentage of your total credit lines. A lender will want to see a low percentage of outstanding debt. For instance, if your total credit lines across all your credit cards is $20,000 but your total debt is only $1,000, that 5% outstanding debt ratio will be a big factor in your favor and may help raise your credit score. For this reason, it may be helpful to accept a credit line increase if it is offered to you. On the other hand, requesting a credit line increase may not help you, and could raise a red flag with your bank.

Of course, if you are the type to immediately go out and max out that credit card, then accepting a credit line increase may not be a wise move. Vigilance is probably the most important factor in improving your credit and helping to keep your good credit reputation. Look at your credit report and credit score often, not just when you’ve been denied credit. By knowing your baseline score, and following the above steps to improve it, you can take a proactive role in your finances and help ensure the best interest rates on your loans.


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