Improving Your Credit

Your credit score has a significant impact on your financial life, influencing your mortgage and credit card interest rates, insurance rates and even employment opportunities.

Your credit score has a significant impact on your financial life, influencing your mortgage and credit card interest rates, insurance rates and even employment opportunities.

According to the Fair Isaac Corp., which created the commonly used “FICO score,” credit scores are based on credit history, including payment history and amounts owed. Forgetting to make a payment, carrying high credit card balances or even not using your credit can lower your score.

FICO scores range from 300 to 850, and, although lender requirements vary, FICO recommends maintaining a score above 700. The most direct way to find out your score is to purchase a report from www.myfico.com.

If your score is less than stellar, take the following steps to help clean up your credit:

• Request a copy of your credit report. Visit AnnualCreditReport.com or call (877) 322-8228 to obtain a free annual credit report from the three nationwide consumer credit reporting agencies: Equifax, Experian and TransUnion.
• Address account errors. If you spot an account or collection activity on your record that does not belong to you, act immediately. Visit the Federal Trade Commission’s identity theft website, www.consumer.gov/idtheft, or call (877) 438-4338 to learn how to handle the matter.
• Resolve collection activities. Past due accounts or collection activity can ruin your credit rating. “If you get a collection notice, call the collection agency and ask for a payment plan,” says Donna Simonson, owner of Bath Credit Services in Bath, N.Y. (pop. 5,641). “If you adhere to the plan, your debt may be removed from the reporting agencies.”
• Manage unused cards. Closing all your inactive credit card accounts can cause concern among potential lenders. “Available credit is desirable too,” Simonson says. “It tells the lenders that you are not overspending.”
• Balance your debt ratio. When the amount you owe is close to your credit limit, it lowers your score. Keep any credit card balance at 50 percent or less of the card’s limit.
• Avoid opening new accounts. It may be tempting to increase your credit or to take advantage of a “zero percent” offer to transfer credit card balances. But opening new accounts or shuffling your debt from one card to another can lower your credit score.
• Re-establish your credit. “After filing a Chapter 13 bankruptcy, I was scared to death to run up any more credit, ever,” says Ginny Lester, 68, of Cody, Wyo. (pop. 8,835). “Years later when I wanted to buy a car, I could only qualify for a ridiculously high-interest loan because I now had no credit.” If you have credit blemishes in your past, it’s smart to stay current with your bills, and also to work on rebuilding your credit.
• Manage credit responsibly. Pay your bills on time, and resist overspending. “Use your credit cards regularly,” advises Jean Johnston, a mortgage broker at First Home Realty in Little Rock, Ark. “But the best rule of thumb is to strive to keep a zero balance.”

Barb Webb is a writer in Salt Lick, Ky.

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