This is National Credit Education Month and we all know that spring has sprung. This is a great time to spring clean your credit. Here are a few things you can do right now to make sure that your credit report and rating are in tip-top shape.
Credit Reports And Scores
A credit report contains information on where you work and live, how you pay your bills and even whether you have been sued or filed bankruptcy. Credit reporting agencies (CRA’s) gather this information and send it to creditors, employers, insurers, and others upon request. The most common CRA”s are the three credit bureaus, Equifax, Experian, and TransUnion.
A credit score is a number that lenders and other companies use to evaluate your credit-worthiness. Scores generally range between 300 and 850. The higher your score, the less risk you pose to creditors.
Credit scores are based on the information in your credit report. There is not just one universal credit score. There are different versions, created by different companies. Each credit score provider uses their own formula to create a score for you and places different amounts of emphasis on several factors, such as:
- Payment history. Do you pay your debt on time?
- Available credit. What is the total amount of credit available across all of your accounts?
- Credit utilization. How much of your available credit are you using?
- Inquiries and new accounts. Have you recently applied for credit or purchased items that required a company to review your credit reports?
- Type of accounts. What is the mix between your mortgage, car loans, credit cards, and other credit accounts?
- Length of your credit history. What is the age of your oldest and newest accounts, along with the average across all accounts?
Although you can obtain your credit reports for free from http://www.annualcreditreport.com you typically have to pay to obtain your credit score. This leads me to the first step in spring cleaning your credit.
- Order your credit reports
- Check for any inaccuracies and correct them.
- Make sure all accounts are up to date with correct balances.
- Reduce your debt to income ratio.
- Have a good mix of debt.
Build A Better Credit History
Let me start by saying, you do not rebuild your credit score; you rebuild your credit history. Time is your ally in improving your credit score. There is no “quick fix” for a bad credit score, so be suspicious of any deals that offer you a fast easy solution. Furthermore, you can repair your credit yourself for free. These tips will get you started.
- Pay your bills on time. Delinquent payments and collections negatively affect your score.
- Keep balances low on credit cards and other “revolving credit.” High outstanding debt lowers your score.
- Apply for and open new credit accounts only as needed. Don’t open an account just to have a better credit mix, it may not raise your score.
- Pay off debt instead of moving it around.
Alright, now that spring has sprung, let’s spring those credit scores up if need be. Happy Spring!