4 Ways to Improve Your Credit Rating and save THOUSANDS Every Year

Credit score is a three digit number that has an impact on just about every major financial decision you make. Every time you apply for a loan or a line of credit. the lender will check your credit score rating to decide what interest rates and terms to offer you on your credit card, auto loan, mortgage, and whether you should get approved for apartment rental or a cell phone.

There are three primary credit report bureaus in the US today: Equifax Credit Information Services, Inc., Experian, and Trans Union. They know almost everything about your credit history, including how much you owe, what accounts you have, what is your credit limit, and whether or not you pay your bills on time. Based on that information, the credit bureaus calculate your credit score, also called FICO score, using a formula developed by Fair Isaac Company.

While a credit score can range from 300 to 850, your goal should be to get your score as close to the 720-850 range as possible.

This will mean thousands of dollars saved on every major financial transaction every year!

Just learning what goes into your report will help you figure out how to improve it - read about this in my post about credit score chart. Credit Score Chart and Credit Score Scale: What are credit score ranges?

Step 1: Get a copy of your credit report (you can get it for free from annualcreditreport.com) and examine the data for errors and negative items.

If there are any negative items that are over seven years old, they can be disputed and most likely removed (except for a bankruptcy, which stays in the file for ten years from the date of discharge). There may be accounts showing missed payments when in fact, they never were. There could be debts of your former spouse, accounts which aren’t yours or civil judgments that aren’t yours. It is estimated that over 60% of credit reports contain some inaccuracies or errors.

Step 2: Dispute all negative items on your credit report by writing a letter and sending it to the credit bureau or the creditor via registered or certified mail.

The Fair Credit Reporting Act gives borrowers the right to review and dispute the items on their credit reports. Credit agencies are required by law to prove the accuracy of the information within 30 days. If they are not able to provide the proof, the item must be deleted. During that time that information cannot be used in the calculation of your score.

Step 3: To reduce your debt-to-credit ratio, you can try to increase your credit limits on your existing credit cards, or open some new accounts.

If you only use 10% to 30% of the credit you have available on a high limit account, your credit score will rise significantly. However, this will only work if you keep the balances on these accounts low. Also, you should not make too many inquiries for credit at the same time, as this may lower your score.

Step 4: Change your spending habits and improve your money management skills, and do not rely on someone else to fix your problems for you.

Especially be careful and do not trust the claims made by various credit repair companies and their ads. Your bad credit history cannot be wiped out from your file overnight. And do not even consider for a moment changing your identity in order to start with a clean record, as some of these companies may propose. Falsifying your financial and personal records is a federal offense, for which you can be convicted and sent to jail.