12 Steps – 12 months to Improve Your Credit Score
(Things to think about 12 months before you apply for credit and especially before applying for a mortgage loan whether it is to refinance or purchase).
Pull your free annual credit reports www.annualcreditreport.com. You have been given the right to know what’s on your credit report. Know what is on it!!
Dispute inaccurate reporting.
Accounts not yours?
Balance owed is wrong? Monthly payment is wrong?
Duplicate reporting?
Highest credit limit wrong or missing?
Creditors reporting late payments when you have not been 30 days or more late?
Steps to disputing items on your credit report-
Call the creditors first to see if they will make the inaccuracies right with the bureaus, and get written documentation.
Write dispute letters to the repositories reporting inaccuracies or omissions on your credit report. *You may need to do this multiple times in order to get it corrected, be persistent. You may also need supporting documentation.
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Pay your bills on time! NO 30 DAYS OR MORE LATE!!!!!
Do not pay collections off. If it is a legitimate collection it is your responsibility to pay it, but if you are going to be apply for a loan paying it may lower your credit score. In most cases after the lender has pulled your credit they may require you to pay it but they already have your score at that time and will not re-pull after you have paid it. So that score is safe for your loan. (Sound funny. The reason paying a collection will lower your credit score is due to the fact that it will make the reporting newer and you have admitted you defaulted with the creditor.
Sometimes by contacting the original creditor and explaining that you did not receive any correspondence of this bill (obviously if you truly haven’t) and telling them you are more than happy to pay it but you would like a letter to have the collection removed from you credit report will handle the problem of your score being lowered by paying it. But this takes a lot of talking, a great reason why it wasn’t paid, and the money to pay it off.
Look at what your highest credit limit is. For example if your highest credit limit is $500 make sure your balance owed is below 40% of the credit limit. In this case that would be $200. If you are above 40% work at getting the balance under this amount, but most importantly never let it get over this amount. If you don’t already have a high credit limit or many credit accounts you may consider having your credit limit increased. This may improve you credit score. *Caution this is a balancing act. Too much credit can hurt your score. Although, I have suggested to keep your balance at or below 40% of your credit limit if you really want to increase your credit score shoot for 20%.
Limit the number of inquires made to your credit file. Multiple inquires appears to creditors that you are overextended, thus lowers your score. Refrain from the store credit cards, which try to suck you in with 10% discounts for applying on your first purchase. It may cost you that or more in the increased interest rate you get down the road due to your lower credit score. A good rule of thumb is to not have more than 3 to 4 inquires each year. Note though that multiple inquires in the same period of time for a car purchase or say mortgage will not affect your credit score much (so do shop for the best deal).
Have credit! You got to have credit to prove your credit worthiness. Most creditors look to see that you have 3 to 4 open and good standing credit accounts (often referred to as trade lines), with a rating history of at least 12 to 24 months.
Taking into account number 7 above closing good standing credit accounts especially ones with a long history of good standing will lower your score. So unless you are paying an annual fee for the credit account keep it open even if you don’t use it. It may also be a good idea to use it, by doing so you may improve your credit score.
If you find yourself to be overextended and you are not able to make the minimum monthly payment, cut up the card/ hide it from yourself, do whatever it takes to stop using it & call your creditor(s) immediately to make payment arrangements. Do this before you are 30 days late and get everything in writing. It might also be the time to get that 2nd part-time temporary job.
Discipline yourself to MANAGE your money! Question yourself: Do you really need that flat screen plasma TV?
Some ideas to get you on the right track:
Have your paycheck automatically deposited into your account.
Have your bills automatically debited out of your account. Caution: only do this if you know that money will be there.
Pay bills online most creditors have this as an option and will send you email notifications that your bill is due. Also most credit card companies will allow you to make 2 to 4 payments towards your balance each billing cycle. This is nice because it allows you the opportunity to take that extra money you found you had at the end of the month to apply to your balance thus getting it paid off sooner and lowering your finance charge.
Make a schedule for when you will pay certain bills in reference to your paycheck and their due dates.
Example if you get paid twice a month decide which bills your need to pay in the 1st of the month paycheck and which you will pay in the 2nd half of the month, and write it down where you will see it. Better yet if you have the ability, make it a habit of paying your bills when they come in.
DO YOU KNOW YOUR DEBT-TO-INCOME RATIOS? THIS IS THE KEY TO MANAGING YOU MONEY AND WILL HELP TO AVOID DEFAULTING ON YOUR CREDIT ACCOUNTS. IT IS ALSO A BIG FACTOR WHEN APPLYING FOR A MORTGAGE LOAN. RULE OF THUMB: NOT MORE THAN 43% OF YOUR GROSS INCOME SHOULD GO TO YOUR CREDITORS AND HOUSING EXPENSES. HOUSING EXPENSES INCLUDES MORTGAGE PAYMENT OR RENT, HOMEOWNERS INSURANCE, MORTGAGE INSURANCE, REALESTATE TAXES, & CONDO OR HOMEOWNER ASSOCIATIONS DUES.
If you miss a payment get it current, stay current. The longer you pay your bills on time the better your score will become over time.
If you move make sure that ALL your creditors are contacted and given your new address. Don’t make the mistake or excuse that you didn’t pay your bill on time because you didn’t receive a bill.
Remember that payment schedule I address in number 10 above that schedule should include:
Creditors Name
Due Date (caution this may vary)
Monthly payment amount (this may need to be an estimate so estimate high)
Account number
Address to send payment & telephone number to contact them in case of an emergency “lost card”.
Post this schedule where you see it, but keep it private. This is your reminder; it won’t be able to remind you if you don’t see it!
