By
Nicholas T Ihrke
Step 1: Start With Your Credit Report
Since your credit score is based off of your credit report, you will want to order your reports from all three credit bureaus and review each one of them. The three bureaus you will want to check with are Equifax, Experian, and TransUnion.
Check the Identifying Information - At the beginning of the report you will want to check for names that aren't yours, Social Security numbers that aren't yours, incorrect birth date, and addresses at which you have never lived. If you find one of these things don't match, someone else's information could be in your file.
Carefully Review the Credit Accounts - The next sections shows what credit accounts that you have opened, the date they were opened, if they are still open or closed, type of account, account number, payment history, credit limits, and balances. Make sure this section doesn't have accounts that aren't yours, delinquencies that aren't yours, late payments/charge-offs that are more than seven years old, debts that a spouse incurred before marriage, or any other incorrect account information. If you find what you believe are several incorrect entries, you may be a victim of identity theft or there could've been a credit bureau mix-up.
Check Your Inquiries - Inquiries show who has requested to review your credit history. It doesn't count inquiries made by lenders who are checking to make pre-approved credit offers or your own requests when reviewing your report. These are known as "soft" inquiries. The ones that do matter are from when you applied for credit, which are called "hard" inquiries. You should check for inquiries that are older than two years and "hard" inquiries that you didn't authorize.
Examine Your Collections and Public Records - The last section of your report will show any collections or public records, including bankruptcies, foreclosures, garnishments, lawsuit judgements, and tax liens. You should look for any bankruptcies that are older than 10 years or that aren't listed by the specific bankruptcy code chapter; lawsuits, judgements, or paid tax liens older than seven years; paid liens or judgements that are listed as unpaid; duplicate collections; or any other negative information that isn't yours.
Dispute the Errors - When you order a credit report, it should come with information on how to dispute any errors you may find. Credit bureaus are required by law to investigate any disputes you bring to their attention and report back to you within 30 days. They will ask the creditor to check the accuracy of their records, and if they can't vouch for what is reported, the negative item is deleted from your report. However, some creditors may continue to report information that is inaccurate and repeatedly report the same incorrect information. This may improve your score some, but it still also depends on what correct information there is.
Step 2: Pay Your Bills on Time
A late payment can hurt your credit score, and the better your credit is, the more a late payment can hurt. Lenders always look for any signs that you might default on a loan, and late payments are a good indicator. Remember that payment history makes up more than a third of your score. A day or two late usually doesn't hurt as payments are usually considered late after 30 days. You shouldn't get in the habit of paying your bills a couple days late though. If you do start to fall behind on your payments, you could start seeing late fees and higher interest rates, as some lenders will occasionally review their customers' credit reports and adjust their rates depending on what they find. It's not just creditors that might show up on your report, but other vendors as well such as cell phone carriers or electric companies. If you are not paying these bills, they could show up as a delinquency on your report as well. Do what you can to avoid penalties for late payments, whether it be signing up for automatic payments, paying utilities with a recurring credit card charge (just be careful that you're then paying your credit card bill on time), online bill pay, and last but not least, just paying your bills as soon as you get them.
Step 3: Pay Down Your Debt
The second biggest factor in determining your credit score is how much of your available credit you are using, so the lower your balance in comparison to your limits, the better. The score also takes into account any progress you're making on paying down installment loans. Continuously paying down debt shows that you are a responsible person with credit. An important thing to remember is that you need to reduce how much you owe, rather than just transferring balances around. Transferring debt from one account to a new one to take advantage of a "0% interest" for a short time period can ding your credit score. There are several strategies on how to do this. You could start with the one with the highest interest rate, or the one with the lowest balance. The one with the highest interest rate will save you more, but will take longer (if it is a higher dollar amount). Paying off a line of credit that has the lowest balance first will give you that feeling of a "victory" sooner. A few final pieces of advice are to always keep in mind how much you are charging on your credit cards, cut back on spending, or earn extra money by selling stuff or picking up a part time job.
Step 4: Don't Close Credit Cards or Other Revolving Accounts
You may be tempted to close a revolving credit account in an attempt to improve your score, but doing this will never actually help your score. Closing these accounts will reduce your total available credit, which will then alter the ratio of the amount of debt vs the credit limit available. Closing an older account can also hurt you as the credit score keeps track of the age of you credit accounts. You should be careful that if you are just not going to use a credit card, that the lender doesn't label your account inactive and start causing other problems for you.
Step 5: Apply for Credit Sparingly
Never apply for credit you don't need. If you do need credit, don't apply for several all at once. Once you have a decent credit history established, there is a point where each credit application after that could reduce your score. That doesn't mean you shouldn't ever apply for a car loan or a mortgage. It just means that if you already have several credit cards, you don't need another one.
Since your credit score is based off of your credit report, you will want to order your reports from all three credit bureaus and review each one of them. The three bureaus you will want to check with are Equifax, Experian, and TransUnion.
Check the Identifying Information - At the beginning of the report you will want to check for names that aren't yours, Social Security numbers that aren't yours, incorrect birth date, and addresses at which you have never lived. If you find one of these things don't match, someone else's information could be in your file.
Carefully Review the Credit Accounts - The next sections shows what credit accounts that you have opened, the date they were opened, if they are still open or closed, type of account, account number, payment history, credit limits, and balances. Make sure this section doesn't have accounts that aren't yours, delinquencies that aren't yours, late payments/charge-offs that are more than seven years old, debts that a spouse incurred before marriage, or any other incorrect account information. If you find what you believe are several incorrect entries, you may be a victim of identity theft or there could've been a credit bureau mix-up.
Check Your Inquiries - Inquiries show who has requested to review your credit history. It doesn't count inquiries made by lenders who are checking to make pre-approved credit offers or your own requests when reviewing your report. These are known as "soft" inquiries. The ones that do matter are from when you applied for credit, which are called "hard" inquiries. You should check for inquiries that are older than two years and "hard" inquiries that you didn't authorize.
Examine Your Collections and Public Records - The last section of your report will show any collections or public records, including bankruptcies, foreclosures, garnishments, lawsuit judgements, and tax liens. You should look for any bankruptcies that are older than 10 years or that aren't listed by the specific bankruptcy code chapter; lawsuits, judgements, or paid tax liens older than seven years; paid liens or judgements that are listed as unpaid; duplicate collections; or any other negative information that isn't yours.
Dispute the Errors - When you order a credit report, it should come with information on how to dispute any errors you may find. Credit bureaus are required by law to investigate any disputes you bring to their attention and report back to you within 30 days. They will ask the creditor to check the accuracy of their records, and if they can't vouch for what is reported, the negative item is deleted from your report. However, some creditors may continue to report information that is inaccurate and repeatedly report the same incorrect information. This may improve your score some, but it still also depends on what correct information there is.
Step 2: Pay Your Bills on Time
A late payment can hurt your credit score, and the better your credit is, the more a late payment can hurt. Lenders always look for any signs that you might default on a loan, and late payments are a good indicator. Remember that payment history makes up more than a third of your score. A day or two late usually doesn't hurt as payments are usually considered late after 30 days. You shouldn't get in the habit of paying your bills a couple days late though. If you do start to fall behind on your payments, you could start seeing late fees and higher interest rates, as some lenders will occasionally review their customers' credit reports and adjust their rates depending on what they find. It's not just creditors that might show up on your report, but other vendors as well such as cell phone carriers or electric companies. If you are not paying these bills, they could show up as a delinquency on your report as well. Do what you can to avoid penalties for late payments, whether it be signing up for automatic payments, paying utilities with a recurring credit card charge (just be careful that you're then paying your credit card bill on time), online bill pay, and last but not least, just paying your bills as soon as you get them.
Step 3: Pay Down Your Debt
The second biggest factor in determining your credit score is how much of your available credit you are using, so the lower your balance in comparison to your limits, the better. The score also takes into account any progress you're making on paying down installment loans. Continuously paying down debt shows that you are a responsible person with credit. An important thing to remember is that you need to reduce how much you owe, rather than just transferring balances around. Transferring debt from one account to a new one to take advantage of a "0% interest" for a short time period can ding your credit score. There are several strategies on how to do this. You could start with the one with the highest interest rate, or the one with the lowest balance. The one with the highest interest rate will save you more, but will take longer (if it is a higher dollar amount). Paying off a line of credit that has the lowest balance first will give you that feeling of a "victory" sooner. A few final pieces of advice are to always keep in mind how much you are charging on your credit cards, cut back on spending, or earn extra money by selling stuff or picking up a part time job.
Step 4: Don't Close Credit Cards or Other Revolving Accounts
You may be tempted to close a revolving credit account in an attempt to improve your score, but doing this will never actually help your score. Closing these accounts will reduce your total available credit, which will then alter the ratio of the amount of debt vs the credit limit available. Closing an older account can also hurt you as the credit score keeps track of the age of you credit accounts. You should be careful that if you are just not going to use a credit card, that the lender doesn't label your account inactive and start causing other problems for you.
Step 5: Apply for Credit Sparingly
Never apply for credit you don't need. If you do need credit, don't apply for several all at once. Once you have a decent credit history established, there is a point where each credit application after that could reduce your score. That doesn't mean you shouldn't ever apply for a car loan or a mortgage. It just means that if you already have several credit cards, you don't need another one.
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