How to Improve Your Credit Report

A credit report is a record maintained by a credit reporting company that contains information about your personal credit history. How good (or bad) your credit report looks is the main factor that determines your ability to get a mortgage, finance a car, or borrow money for just about anything. As important as a credit report is, many people dont know much about how credit reports are evaluated or what factors lenders take into account when deciding whether or not to extend credit. One reason for this is that its only in the last few years the three major credit reporting companies (Equifax, TransUnion and Experian) have been required to give consumers access to the contents of their credit reportsand they still are reluctant to discuss how the information is used by potential lenders. This article takes you through the items lenders consider important and explains what you can do to improve your credit report.

Instructions

1

Get a copy of your credit report from each of the three major credit reporting companies. They are required by law to give you a copy free of charge once a year. The link below will take you to the official website where you can request your credit report. You do not have to purchase anything to get this report free once a year.

2

Check your credit report for errors. If you find mistakes contact the credit reporting company and have the error corrected. You can also identify fraudulent applications for credit or other forms of identity theft that can cause you problems.

3

Use your credit report to identify each of the items that can reflect badly on you or lower your credit score (your credit score is that much talked about number that summarizes the information in your credit report). Once you have identified weak spots in your credit history you can take action to improve your credit report. The remainder of this article explains the things potential lenders consider most important and what you can do to strengthen your credit history in those areas.

4

Pay particular attention to your payment history. This is the single most important thing to lenders. If you have a record of making payments on time it will reflect favorably on you. If a situation arises where you cannot avoid missing a payment due date, contact the company and tell them when the payment will be sent and get it in as soon as you can. If you do this, many lenders wont report an occasional late payment especially if youve been a customer for a long time.

5

Avoid making overdrafts (bouncing checks). We all can make a mistake and banks will usually cover you if this happens only rarely (but will charge you a stiff penalty fee). Ideally, though, you should have no overdrafts at all.

6

Keep your total debt and payments within your ability to pay. If you have to spend too much of your monthly income servicing your debt obligations it will make lenders reluctant to extend more credit. A good rule of thumb is that you should keep your total monthly payments low enough that you can put at least a little aside in a savings account each month.

7

Dont constantly apply for new credit accounts or close accounts. This looks bad on your credit report because to a lender it indicates you may be over extended or likely to borrow more than you can afford to pay.

8

Get help fast if you run into financial problems. Most lenders are willing to work with you if you take the initiative to contact them and make a good faith effort to pay what you owe. This is in their interestthey want to get their money! But one of the advantages is that they will usually minimize any negative information that gets passed along to credit reporting companies. Doing this also minimizes the risk of ending up in bankruptcy, which will ruin your credit report for years to come.