Can an Average Consumer Improve Their Own Credit Score?
In the wake of recent financial events, many people have been made acutely aware of the importance of maintaining a high credit score.
Now that banks and other lenders have begun cracking down on the issuance of credit to just about anyone that walks through their doors, consumers are scurrying to figure out how to still be able to borrow money when needed.
While loans are not as freely flowing as they once were, it is still possible to get the credit your need, but it all rests on how strong your credit score is.
Unfortunately, the reins have been pulled in on the issuance of credit at the same time that the financial crisis has adversely affected many people's credit scores.
Due to the financial environment, loss of jobs, and increases in other costs of living, some consumers have found it difficult to pay bills on time or to pay them at all, and this has resulted in negative consequences to their scores.
Before attempting to improve your credit score, you need to understand how that score is calculated in the first place.
Credit worthiness, or your score, is based on various aspects of your credit history.
These include payment history, which is how you have paid your bills in the past and whether they are on time, how much outstanding credit you have relative to the maximum credit available to you, the length of your credit history, how often you've applied for loans recently and the types of credit you have.
FICA '08 was introduced as a newer way to forecast creditworthiness in order to determine which consumers were most likely to default on loans.
This has put greater emphasis on delinquent payment patterns and has also made it more difficult for those with poor scores to still obtain loans by having an authorized user on their account.
Since this change has worked against the average consumer, it is important to know what steps you can take.
Not only does having a poor score reduce the likelihood that you will be issued additional credit in the future, but the negative credit info compiled by reporting agencies is often sold to credit card companies, and this can result in higher interest rates being assessed on your balance.
So, how do you improve your score? It comes down to trying to remove any derogatory items that are on your report (some that may wind up there in error) and then once that is cleared up, maintaining a healthy credit portfolio and sensible spending habits.
This may entail changing the way you utilize credit, the number of lines of accounts you have open, the types of loans you have, and other factors that can affect your score.
The first thing you need to do is to obtain a copy of your credit report.
There are three types of reports and each may provide different information.
There are also three credit reporting agencies.
The three types of reports are consumer reports (the ones most people are most familiar with), auto enhanced reports (used for automobile purchases), and residential mortgage reports (used for home mortgages).
Obtaining all three reports is best, but at a minimum, you want to at least get a copy of your residential mortgage credit report, which most accurately portrays your score.
Once you have the credit report, you want to review it for items that don't belong to you or any errors.
Make sure you haven't been a victim of identity theft and that there are no mistakes on the report, which can happen.
Check if there are any credit inquiries on your report (which would mean that a company was checking your credit report due to the possibility of issuing you additional credit).
Once you have reviewed the report for errors, it is best to dispute any problems directly with one of the three reporting agencies, Experian, Equifax or Transunion.
Inaccurate items wind up on credit reports fairly often and the best line of defense is to work with the credit reporting companies, or directly with the creditors, to remove any inaccurate information.
Once your report is cleared up, then it is time to continue to work on improving your score, by managing your finances wisely.
paying your bills on time, paying down debt whenever possible, not closing revolving accounts (like credit cards, lines of credit, etc), and working to maintain a proper mixture of credit so that your scores remain as high as possible.
In these unsettled times, maintaining a strong score is sometimes difficult.
But never before has it been so important to do so.
Improved credit scores not only make it easier to receive credit, but also lower interest rates on the credit you do receive.
So, it is worth taking the time to clean up your existing credit reports and to work to manage your finances as effectively as possible in order to improve your credit score.
Now that banks and other lenders have begun cracking down on the issuance of credit to just about anyone that walks through their doors, consumers are scurrying to figure out how to still be able to borrow money when needed.
While loans are not as freely flowing as they once were, it is still possible to get the credit your need, but it all rests on how strong your credit score is.
Unfortunately, the reins have been pulled in on the issuance of credit at the same time that the financial crisis has adversely affected many people's credit scores.
Due to the financial environment, loss of jobs, and increases in other costs of living, some consumers have found it difficult to pay bills on time or to pay them at all, and this has resulted in negative consequences to their scores.
Before attempting to improve your credit score, you need to understand how that score is calculated in the first place.
Credit worthiness, or your score, is based on various aspects of your credit history.
These include payment history, which is how you have paid your bills in the past and whether they are on time, how much outstanding credit you have relative to the maximum credit available to you, the length of your credit history, how often you've applied for loans recently and the types of credit you have.
FICA '08 was introduced as a newer way to forecast creditworthiness in order to determine which consumers were most likely to default on loans.
This has put greater emphasis on delinquent payment patterns and has also made it more difficult for those with poor scores to still obtain loans by having an authorized user on their account.
Since this change has worked against the average consumer, it is important to know what steps you can take.
Not only does having a poor score reduce the likelihood that you will be issued additional credit in the future, but the negative credit info compiled by reporting agencies is often sold to credit card companies, and this can result in higher interest rates being assessed on your balance.
So, how do you improve your score? It comes down to trying to remove any derogatory items that are on your report (some that may wind up there in error) and then once that is cleared up, maintaining a healthy credit portfolio and sensible spending habits.
This may entail changing the way you utilize credit, the number of lines of accounts you have open, the types of loans you have, and other factors that can affect your score.
The first thing you need to do is to obtain a copy of your credit report.
There are three types of reports and each may provide different information.
There are also three credit reporting agencies.
The three types of reports are consumer reports (the ones most people are most familiar with), auto enhanced reports (used for automobile purchases), and residential mortgage reports (used for home mortgages).
Obtaining all three reports is best, but at a minimum, you want to at least get a copy of your residential mortgage credit report, which most accurately portrays your score.
Once you have the credit report, you want to review it for items that don't belong to you or any errors.
Make sure you haven't been a victim of identity theft and that there are no mistakes on the report, which can happen.
Check if there are any credit inquiries on your report (which would mean that a company was checking your credit report due to the possibility of issuing you additional credit).
Once you have reviewed the report for errors, it is best to dispute any problems directly with one of the three reporting agencies, Experian, Equifax or Transunion.
Inaccurate items wind up on credit reports fairly often and the best line of defense is to work with the credit reporting companies, or directly with the creditors, to remove any inaccurate information.
Once your report is cleared up, then it is time to continue to work on improving your score, by managing your finances wisely.
paying your bills on time, paying down debt whenever possible, not closing revolving accounts (like credit cards, lines of credit, etc), and working to maintain a proper mixture of credit so that your scores remain as high as possible.
In these unsettled times, maintaining a strong score is sometimes difficult.
But never before has it been so important to do so.
Improved credit scores not only make it easier to receive credit, but also lower interest rates on the credit you do receive.
So, it is worth taking the time to clean up your existing credit reports and to work to manage your finances as effectively as possible in order to improve your credit score.
