Ways to Improve Your Credit Score

It takes time and sound financial habits to improve your credit score. There are steps you can take to see if any quick-fix options are open to you, but in all cases, you begin by knowing your credit score, fixing any mistakes and paying all debt on time.

Know Your Score and History

Anyone who borrows has a credit report maintained by the three U.S. credit reporting bureaus: Equifax, Experian and TransUnion. Lenders report to the three agencies and report all payment histories. Payment histories include late payments, closed and charged off accounts and legal actions, such as foreclosures, liens or bankruptcy.

Based on your credit history, the Fair Isaac Corp. calculates a credit score for you between 300 and 800. This is called your FICO score. A score of 720 is excellent and will qualify you for the best rates a lender can offer. In contrast, a 660 or below is low, and you will be classified as a subprime borrower. A subprime borrower gets higher rates, about three percentage points higher, than the best borrowers. The U.S. median score is 723.

To improve your credit score, begin by requesting your annual free credit report from any of the three bureaus. You do this through www.annualcreditreport.com.

Identify and Correct Mistakes

The only quick fix to improve your credit score is to find and correct mistakes in your favor in your credit history. After receiving your credit report, carefully review all items on your credit history. If you find incorrect information, write a letter to the appropriate credit reporting bureau and include copies (not originals) of supporting documentation. The bureau has 30 days to acknowledge receipt, and if the claim is not frivolous, it must work with the lender in question to see if your claim is correct.

Removing negative information from your credit history is one way to quickly improve your credit store.

Time and Good Habits

If you are like most people, it takes time - a matter of years - to improve your credit score. While correcting mistakes in the history can help, more dramatic improvement comes as you develop and maintain sound financial habits and wait for negative information to fall off your report.

Negative information drops off your credit history after seven years, 10 years for a bankruptcy.

Be wary of borrowing you way to financial health. More than the history goes into the FICO score calculation. If you borrow frequently, it can lower your score.

Watch Out For Scams

Many companies advertise that they can improve your credit score dramatically and quickly. Be wary of such claims. As stated above, the only quick fix to improve your credit score is to find and correct mistakes. Paying on time will keep your score from getting worse but will only improve it over time. Closing bad accounts will not remove the negative activity associated with them. For most, it takes discipline and time to improve your credit score.

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