Whether you’re applying for a small business loan, a mortgage, or even a job, your credit score will often factor into the equation. If you have a credit score of 650 or higher, most lenders will consider you a prime candidate. Less than 650, and you’re considered subprime, which means if you get approved for that mortgage or other loan, you’ll usually get slapped with a higher interest rate and less than desirable terms.
But are you doomed to a life of bad credit and high interest rates? Not necessarily.
The good news is that many people don’t even know their credit score, much less how to improve it, so you’re already ahead of the curve. I first recommend you go to myfico.com to get your scores. Then, use these 5 steps.
1. Correct any mistakes.
Sometimes your credit report contains incorrect information, so it pays to request a copy and dispute any discrepancies. For instance, if you resolved a dispute with a lender but they merged with another company, that could create clerical headaches that make it look like your issue is unresolved. If a credit limit is reported as lower than it actually is or if your report shows inaccurate charge-offs and late payments, that can also ding your credit score.
2. Make timely payments.
If you make a series of 12 or more on-time payments, your lender will be more likely to “re-age” your account and erase previous delinquencies. Plus, making on-time payments will improve your credit in the long-term.
3. Don’t max out your cards.
Lenders like seeing a sizable gap between the amount of credit you use and your available credit limits, so strive to get your balance below 30% of the credit limit on each card. The credit bureaus calculate your scores based on the balance reported on your last statement, so if you had a huge balance, (even if you paid it off in full) that can work against you.
4. Focus on your oldest card.
The longer you’ve been using your credit cards, the better. So don’t close your oldest card if that account is still in good standing. Some credit counselors also recommend that you charge a small amount on your oldest card every few months (and pay it off in full, of course) so that it continues factoring into your credit score. If you stop using it, the issuer may stop updating the credit bureaus and it won’t weigh as much as your other cards.
5. Don’t fall for a credit repair scam.
Unfortunately, there are lots of companies that target people who want to repair their credit, and falling for one of these scams can cost you hundreds of dollars. Many of the strategies they use are illegal and ineffective, like telling you to apply for a “new” credit identity under an employer identification number instead of your social security number or dispute all the information on your credit report, even if it’s accurate. If a company tries to dissuade you from contacting the credit reporting companies directly or they refuse to tell you your rights, run away!
With careful attention to your credit, you’ll be back on track to a stable financial future.
© 2010 Ali International, LLC
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