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It’s no secret that we need a good to very good credit score to buy a house or to just do well in this economy. However, things do happen in life, like emergency situations, late payments or lose of a job.
These situations can wreck your credit history and damage your credit score. The good news is that there are actions you can take on your own or by hiring a professional to fix your credit problems.
First, you need to find out what is in your credit history by ordering your credit report. You can order online for free at annualcreditreport. Also, the credit bureaus will give you your credit report once a year.
Second, review your credit report and look for negative activities and potential errors. Identify who you owe the debt to, amount, date of debt. This information is necessary to take steps to clear your report and it will give you a picture of where you stand credit wise.
Once you have your credit report and have the negative information identified, you can start taking action to clean up your report.
Use these 5 Hacks to Improve your FICO Score and Build Credit
1.Clean up the negative entries on your report
Request your free credit report from annualcreditreport.com. This is a central site created by the three main credit bureaus. You can get a credit report free, but won’t get the score.
To see your score you can obtain a credit report+score from the bureaus. Transunion has a limited time offer to get credit score and report.
Why do you need a copy of your credit report?
Your credit report has information that affects whether you can obtain a loan. How much you will have to pay on borrowed money, the interest rate. You want a copy of your report to:
- make sure the information is accurate and up-to-date before you apply for a loan for a major purchase like a house or a car. Also, to buy insurance and to apply for a job.
Review the report and identify information that is outdated, not recognize by you, potential errors or unverified.
Start the dispute process by contacting the main credit bureaus. Below is the contact for Equifax, Experian and TransUnion. Using their sites you can decide on a method to dispute data on your credit report.
The disputed accounts will not be used for the FICO calculation. However, they will show up as disputed.
Take the time to clean up the negative entries because if successful in dropping some of it, you can improve your FICO score.
Remember that it’s in your best interest to have a good credit score. Good credit allows you to obtain loans and insurance plans at good interest rates.
Credit bureaus contacts
- By mail: Download this form and send it http://www.equifax.com/cp/MailInDislcosureRequest.pdf
- Equifax Information Services LLC . P.O. Box 740256 Atlanta, GA 30374
- Telephone – 1-866-640-2273
- By mail: P.O. Box 4500Allen, TX 75013
- Telephone – 1- 888-397-3742
- By mail: http://www.transunion.com/docs/rev/personal/InvestigationRequest.pdfTransUnion LLC 2 Baldwin Place P.O. Box 1000 Chester, PA 19016 800-888-4213
- Teléfono – 1-800-888-4213
2. Decrease your credit utilization
The credit utilization is the ratio of your outstanding credit/total credit approved. Simply, in order to decrease this ratio you need to have less debts, not more debts. Don’t max out your credit cards.
Payoff some credit cards, consolidate when possible and don’t solicit new credit. It is recommended to maintain your credit utilization at 20-30% of your total approved credit. so, if you have a total approved credit line of $1,000, you should have only $300 outstanding debt or 30%.
3. Consolidate your personal debts
This strategy may sound like you are taking on more debt, but it’s actually a combination of your old debts. So, a little math fun. The trick with this strategy is to get approved for a loan with lower interest rate than your old debts. This strategy can work for people with a lot of credit card debts and who are paying high interest rate.
The lower interest rate can save you hundreds or even thousands of dollars. Keep in mind that credit cards usually charge 12 – 15% interest rate. If you can, for example, get a personal loan to consolidate your debts at 6 – 8% interest rate, you will be much better off. It’s important to payoff your debt once you consolidate.
There are many debt consolidation companies. To prevent fraud or scam, you should research any company you’ll be doing business with before you sign a contract.
4. Become an authorized user or Piggyback
This strategy can work for couples or for students/parents. Piggyback means you join someone’s account as an additional user. The main user should have good a good credit score and history.
Assuming that someone is willing to do this for you, you can start building or rebuilding your credit history.
5. Keep your credit card opened
If your debts are manageable and you don’t need consolidation, keep your cards opened. The reason for this is because your approved credit has a good impact on your credit utilization ratio, provided you are not using it.
Use your credit card to your advantage. Do your shopping;, clothes, grocery, entertainment with your card, but pay your balance in full. This activity is very positive and can increase your score when done consistently.
Improving your credit score is not so difficult. If you do the hacks above consistently, your credit can be improved. These are not the only strategies to increase your score. There are also popular strategies, like the snowball and avalanche debt management methods that can improve your credit.
Also, very important is to pay your bills on time. Late payments can decrease your score by 100 points or more easily. This is because late payment is weighted high in the formula for score calculation. The weight of credit history is 35% in the formula. Below is a chart representing the weights in the credit score formula, per FICO.