Your credit score has an affect on pretty much every aspect of your financial life. Whether you need a car loan or a credit card, your credit rating will come into play. Even if you want to sign up for a cell phone plan, they check your credit score. The better your score is, the lower your bills will be. So, what should you do if your score is just not good enough? You need to improve your credit score to improve your finances, plain and simple.
Your credit score can end up costing you a lot of money. Lower scores result in higher interest rates, and less trust in you on the part of your lender. If you want to potentially save thousands of dollars over your life span you need to improve your credit score. But, is it as simple as it sounds? Check out our tips to help your rating and reap the rewards that go hand-in-hand with a good credit score.
Review the Accuracy of your Credit Report
Everyone has 3 different credit reports – a report from each of the major credit bureaus: Experian, Equifax, and TransUnion. If you see a result on your credit report that doesn’t match up with what you believe your report should be, maybe it’s wrong. Sometimes, agencies might collect incorrect information and it could totally mess up your report.
In 2012, a report from the Federal Trade Commission found that 20% of consumers have reported an error on at least 1 of their credit reports. Any mistakes made on your report can affect your score greatly and can impact your finances negatively so checking your report is actually super important. Under the Fair Credit Reporting Act, you’re entitled to a free report (one from each company) every year.
You should compare all 3 of the reports. While they will look a bit different, the majority of the information should be pretty much the same.What information do you need to check for potential errors? Check this list:
- Is your personal info correct – your Social Security number, D.O.B, full name etc.
- Have you noticed any mistakes about missed or late bills you’re certain you paid on time?
- Have all of your credit accounts reported?
- Are there any accounts or applications there that you don’t recognize?
- Is there any mention of items from a long time ago still appearing?
If you see any of these inconsistencies highlight them. One bureau’s report may have a discrepancy while the others may not so you really need to go through them with a fine-tooth comb. You may not find any issues but if you do you may be able to have them fixed and improve your credit score in the meantime.
Why is your Credit Score so Low?
While the mistakes listed above could have something to do with your low credit score, they are not necessarily the reason behind it. Something as little as a wrong spelling in your name is probably not the cause but regardless, there could be a reason as to why the mistakes are even there.
- Your identity could have been stolen and the thief is abusing your credit.
- A collection account that is past the statute of limitations is still being reported.
- An ex-partner may have left a bill they were required to pay under your divorce has not paid it.
- You defaulted on a loan which has since been sold to debt collectors and it is now showing up as multiple defaults.
- Your credit report could have been mixed up with someone’s of the same or similar name.
So none of these mistakes apply to your report but your credit score is still bad? You need to understand the things that affect your credit rating. You will never improve your credit score if you do not understand the implications of the following:
- Volatile Payment History: If you have a history of missed or late bill payments lenders tend to see you as a bigger risk. This could be affecting your credit score.
- Debt: If you have 5 or more maxed out credit cards, lenders worry about how much more credit you can take on and if you can make repayments.
- Young Accounts: If your accounts are new and your credit history is still in its youth it means that lenders have little information to go on and are therefore unable to decide you are not a liability to them.
- Different Types of Accounts: Being able to handle credit cards as well as loan repayments rather than just one helps you improve your credit score. It shows lenders you are responsible enough for more credit. Having only 1 type unfortunately doesn’t prove anything to lenders.
How Can You Improve Your Credit Score
Your credit report may be accurate but you know that there are things that you can improve on. What is the first step in improving your credit score? You need to come up with a plan that allows you to improve it painlessly. So what should you do?
You can employ a credit repair company to help you out but do remember that there are some great companies out there and some not so great companies. A good credit repair company will never ask you to do any of the following:
- Charge you fees upfront. The company should not charge you until they’ve finished the work.
- Ask you to create a new identity rather than deal with your debts.
- Guarantee any specific improvement in your score. ‘Overnight’ promises are never real. Improving your credit score takes time.
Some people find that to try and improve your score by yourself is too much work and they just do not have the time. Using a credit repair company may seem like you’re spending more money than you need. However, if you improve your credit score it will save you so much hassle, stress, and headaches in the long-run!
Featured Image: Thinkstock/ AndreyPopov