It is more important than ever to fix your credit score because every lending institution uses it to determine loan terms. Also, a low credit score can keep you from renting a house or apartment and even from getting a good job as many landlords and companies now use the FICO credit score to weed out undesirable tenants and employees.
Even if your credit is only somewhat tarnished by a few bad experiences, fixing those items can end up saving you a great deal of money in interest rates, fees, down payments and other expenses associated with the loan industry.
Pay Down Credit Cards
In order to improve your credit score, you should pay down your credit card balances to 30% or less of their credit limit. This should even be done before paying down installment loans, such as mortgage, auto and student loans, as revolving credit impacts your credit score much more than these types.
The reason for this is that credit formulas highly regard the gap between the amount of available credit and the credit you’re actually using on revolving accounts.
Keep Credit Cards Active
Many people believe when they get into financial trouble and fall behind on credit card payments that they can help their credit by closing all accounts. This is not true. Closing all your credit card accounts will actually lower your credit score. If you have numerous credit cards then close a couple, but keep several active.
The best practice is to pay down credit card balances below 30% and then use them once in awhile to make a small purchase. Of course, you should make greater than minimum payments, or pay the small balance in full each month.
Dispute Negative Items
Any negative items on your credit report which are outright errant, or are remotely suspicious, should be disputed. Even smaller and older amounts should be contested since most companies won’t bother with spending the resources to validate them.
The credit bureaus give lenders 30 days to validate the charges and if they don’t or can’t then they must come off your credit report. Be sure to check your report periodically to make sure disputed charges have been dropped.
Scrutinize Everything on Your Credit Report
Certain items listed on your credit report carry significant weight when it comes to receiving good credit. You should scrutinize and repair as many of these items as possible.
The items you should concentrate on are the following:
- Any negative items which are more than 7 years old (10 for bankruptcy) should have been removed
- Negative items which are not yours such as charge-offs, late payments, collections, etc
- Items included under a bankruptcy, but which are still listed as “unpaid”
- Negative labels for accounts which have been paid on time or in full such as “Paid Derogatory”, Paid Charge-Off”, “Settled” or any label which is other than “Paid As Agreed” or “Current”
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