A good history of using credit wisely isn't just your ticket to the finer things in life such as a newer car or bigger home. Good credit affords you the basics --- it affords you the luxury of renting an apartment without hassle and signing up for utilities without making a huge deposit. If your history of repaying loans and credit card balances is far less than stellar, set the record straight by trouble-shooting potential "black marks" that have the potential to linger on your credit report for years.
First Steps
When it comes to your credit, knowledge is power. The three major credit bureaus --- Equifax, Experian and TransUnion --- each have their own unique way of tallying up your credit score; however, it's often your FICO score, derived from the scoring method devised by the Fair Isaac Cooperation, that prospective lenders defer to most frequently. Lenders also refer to the credit reports maintained by each of the three credit bureaus, which give the lender a snapshot of how you manage debt. Thirty-five percent of your credit score looks at your payment history, and another 30 percent looks at how much debt you owe compared to your available credit limit. Late and skipped payments paired with maxed-out credit card limits spell disaster for your credit.
To find out why your credit score is flagging and what you can do to give it a boost, order your credit reports from each of the three bureaus. The federal Fair Credit Reporting Act authorizes you to receive one free copy of these reports per year. You can order your credit reports online through the government-authorized (website annualcreditreport.com), by calling 1-877-322-8228 or by filling out the online request form and sending it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, Georgia, 30348-5281. (Ref 1, 2, 3, 4, 6)
Tidying Up Your Credit
Lowering the balances on secured credit lines and making timely monthly payments may all you need to get your score back in the black. Avoid applying for too many credit cards and loans in a short period of time --- these show up on your credit reports as "inquiries" and may suggest to prospective lenders that you're in dire financial straights. A short history of using credit can also lower your score, although this can be offset by making timely payments on existing loans and credit cards. A healthy blend of credit card debt and installment loans, such as a loan for an automobile or college, can also boost your credit score.
However, you may not be able to do anything about the negative records that show up on your credit history except wait until they expire and drop off your credit history. A typical example of a negative record is an unpaid credit card balance turned over to a collections agency. Other negative information shows up in the form of court-reported public records such as foreclosures, bankruptcies and liens.
Dealing With "Black Marks"
There's no legal method to remove accurate negative information from your credit report. Beware of companies that claim they can clean up your credit for a fee, because they're likely promising you the impossible. By law, you're entitled to dispute negative information reflected in your credit reports with Experian, Equifax and TransUnion that is inaccurate. One instance in which you would dispute negative information is if a perpetrator of identity fraud opened several credit card accounts in your name without your knowledge. Negative records that accurately depict your history of credit use remain on your reports for seven years in most cases. However, some public records, such as bankruptcies, remain on your credit history for 10 years. Judgments can remain on your credit reports for seven years or until the statute of limitations in your state expires, whichever is longer.
Other Tips
A FICO score of over 700 tells prospective lenders that you can be trusted to manage your debt. However, a score under 600 suggests that you might need to straighten up your credit history. If you can't adjust your personal budget so you're able to pay bills promptly and in full every month, ask for help. A reputable credit counseling service offers you a variety of services, from helping you develop a tighter budget to offering a debt management plan in which the counseling service negotiates a repayment plan with your creditors.
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