Tips for Improving Your Credit and Credit Score

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Tips for Improving Your Credit and Credit Score

While credit is very important to the economy, its abuse is harmful.

If you charge it, make sure you can pay it off

One should never use credit to purchase things for which one will not be able to pay in the future (in fact, it’s better to use credit for things you already have money for; you can build up your credit score this way). Many impulse purchases are made on credit with little thought given to how the debt will be repaid in the future. If one calculated the true cost of goods bought on credit, one would have second thoughts about making the purchase in the first place.

Tips for using debt wisely

All of this is not to suggest that you shouldn’t use credit; it just means use it wisely.

• If you must use a credit card, pay the entire balance when you get the bill. Consider setting up automatic payment deductions from a bank account to pay your bills.
• Avoid impulse purchases. If you cannot pay cash, wait 24–48 hours before making the purchase—you may find that you didn’t need the purchase after all.
• If you have high-interest loans, consider consolidating them for one lower-interest loan.
• If you cannot consolidate high-interest loans, then pay the higher-interest loans faster than the lower-rate loans.
• Never merely make minimum monthly payments on revolving credit accounts.
• Use your card regularly. Using your card regularly helps build up your credit history.
• Use it for things you already have money for. This will help ensure that you pay your balance in full each month. But more importantly, it is an easy way to help you build a credit record.
• If you can’t make your payment on time, call up the card company and explain your situation. Companies might waive late fees or extend your due date.
• Don’t max out your cards. Using about a third of your credit limit is optimal.
• Don’t apply for a lot of new credit cards. Keep only a few.

Ways to improve your credit score

The best way to improve your credit score is to have a good credit history. If you are just starting out or if you need to do "credit repair," obtain and use a secured credit card, being sure to pay the full balance each month—you do not need those extra finance charges. Secured credit cards are issued by some banks, credit unions, and credit card companies. They require you to keep a minimum balance in a savings account to secure the card. For example, if you keep $500 on deposit, you can get a credit card with a $500 credit limit. Be sure to pay all your bills on time—make and stick to a budget.

Clean up negative information

Negative information in your credit report can hurt your ability to get credit or get the best loan interest rates. You should get a copy of your credit report at least once a year from all three credit bureaus to verify that the information is correct. You can do it most quickly at www.annualcreditreport.com.

Clean up anything negative that can be cleaned up. This includes the following:

• Delinquent accounts
• Accounts in collection (this can include medical bills, phone bills, etc.)
• Criminal records
• Lawsuits against you
• Court judgments against you
• Late payments
• Child support that has not been paid

This information stays in your credit report for seven years. Work on cleaning up whatever can be cleaned up, for example, overdue or delinquent accounts. Some information can stay on your report longer. Bankruptcies can remain for seven years for completed Chapter 13 bankruptcies and 10 years for Chapter 7 bankruptcies. A criminal conviction can stay longer than that.

Dispute any false information

While no one can legally remove accurate and timely negative information from your credit report, you do have the right to request a re-investigation of the facts and to dispute inaccurate information. You should contact the reporting agency for a dispute form, or send your own letter with a copy of your report clearly showing which items you are disputing and why you dispute them.

Here is a sample dispute letter.