10 Steps to Improved Credit
1. Know What Credit Is
Did you know that there are companies that keep track of whether you pay your debts and if you make payments on time? Then these companies make this information available in the form of a credit report and score.
A bad credit history can haunt you for a long time — seven years or more. That’s why the best thing to do is learn how to maintain good credit before there’s a problem. While this might seem complicated at first, it gets easier once you understand the basics of credit and how it works.
Credit is more than just a plastic card you use to buy things — it is your financial trustworthiness. Good credit means that your history of payments makes you a good candidate for a loan, and creditors (those who lend money) will be more willing to work with you. Having good credit usually translates into lower payments and more ease in borrowing money. Bad credit, however, can be a big problem. It usually results from making payments late or borrowing too much money, and it means that you might have trouble getting a car loan, a credit card, a place to live, and, sometimes, a job.
2. Understand Your Credit
Most creditors use credit scoring to evaluate your credit record. This involves using your credit application and report to get information about you, such as your annual income, outstanding debt, bill-paying history, and the number and types of accounts you have and how long you have had them. Potential lenders use your credit score to help predict whether you are a good risk to repay a loan and make payments on time.
Many people just starting out have no credit history and may find it tough to get a loan or credit card, but establishing a good credit history is not as difficult as it seems.
3. Read The Fine Print
When applying for credit cards, it’s important to shop around. Fees, charges, interest rates and benefits can vary drastically among credit card issuers. And, in some cases, credit cards might seem like great deals until you read the fine print and disclosures.
When you’re trying to find the credit card that’s right for you, look at the:
Transaction Fees And Other Charges
4. Improve Your Credit Record
A lot of people spend more than they can afford and pay less toward their debts than they should. To get control over your finances and to manage your debt, try:
A credit counseling organization isn’t necessarily legitimate just because it says it’s nonprofit. You may want to check with the Better Business Bureau for any complaints against a counselor or counseling organization. Visit www.bbbonline.org for your local Better Business Bureau’s telephone number. Bankruptcy is considered the credit solution of last resort. Unlike negative credit information that stays on a credit report for seven years, bankruptcy information can stay on a credit report for as many as 10 years. Bankruptcy can make it difficult to rent an apartment, buy a house or a condo, get some types of insurance, get additional credit, and, sometimes, get a job. In some cases, bankruptcy may not be an easily available option.
When To Contact Creditors
5. Keep Your Credit Record Clean
It’s easy to qualify for credit if you have a good credit history, but what if you have never used credit before? This is a common problem for people who just started working, those who work in the home, people who always pay in cash, and those who do not have assets or accounts in their own names. For them, the first step is to establish a credit history.
Patience is important in this process. It takes time to establish credit and build a record of consistency in making payments to demonstrate your creditworthiness. And it is much better to go slowly and develop a strong credit record than to apply for too many credit cards or a loan that is larger than you can handle. Start slowly, be cautious, keep track of your overall debt, and pay on time. Most importantly, remember that credit actually represents real money and has to be repaid with interest.
Good credit is important, now and in the future. In most cases, it takes seven years for accurate, negative information to be deleted from a credit report. Bankruptcy information can take even longer to be deleted — up to 10 years depending on the type of bankruptcy.
6. Know What Creditors Look for on Credit Reports
Understanding what types of information most creditors evaluate is important. Your credit report is a key part of your credit score, but it is not the only factor. Other factors include:
7. Obtain a Copy of Your Credit Report
Credit reporting agencies don’t share files so you’ll need to contact each reporting agency to make sure the information about you is correct. The three major credit reporting agencies are:
The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months. You can order your free annual credit report online at www.annualcreditreport.com, by calling 1-877-322-8228, or by completing the Annual Credit Report Request Form found on www.ftc.gov and mailing it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.
When you order, you need to provide your name, address, Social Security number, and date of birth. To verify your identity, you may need to provide some information that only you would know, like the amount of your monthly mortgage payment.
8. Keep Credit Cards Under Control
Whether you shop online, by telephone or by mail, a credit card can make buying many things much easier; but when you use a credit card, it’s important to keep track of your spending. Incidental and impulse purchases add up, and each one you make with a credit card is a separate loan. When the bill comes, you have to pay what you owe or pay interest on unpaid balances. Owing more than you can afford to repay can damage your credit rating.
Keeping good records can prevent a lot of headaches, especially if there are inaccuracies on your monthly statement. If you notice a problem, promptly report it to the company that issued the card. Usually the instructions for disputing a charge are on your monthly statement. If you make a purchase by mail, telephone or online keep copies and printouts with details about the transaction.
These details should include the company’s name, address and telephone number; the date of your order; a copy of the order form you sent to the company or a list of the stock codes of the items ordered; the order confirmation code; the ad or catalog from which you ordered (if applicable); any applicable warranties; and the return and refund policies.
9. Protect Your Identity
Identity theft involves someone else using your personal information to create fraudulent accounts, charge items to another person’s existing accounts, or even get a job. You can minimize the risks by managing your personal information wisely and cautiously.
Here are some ways to protect yourself from identity theft:
What to Do If You re a Victim of Identity Theft
10. Guard Your Personal Information
A lost or stolen wallet or purse is a gold mine of information for identity thieves. If your wallet or purse is lost or stolen:
About Lost or Stolen Cards
Federal Trade Commission
The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint or to get free information on consumer issues, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the United States and abroad.
The FTC is the federal clearinghouse for complaints by victims of identity theft. Although the FTC does not have the authority to bring criminal cases, the FTC assists victims of identity theft by providing them with information to help them resolve the financial and other problems that can result from identity theft.
The JumpStart Coalition for Personal Financial Literacy
The JumpStart Coalition for Personal Financial Literacy seeks to improve the personal financial literacy of young adults by evaluating their financial literacy; developing, disseminating and encouraging the use of standards for grades K-12; and promoting the teaching of personal finance.
The above information has been taken from “What You Need To Know About Credit” by the Federal Trade Commission or “FTC” and “How to Establish Use, and Protect Your Credit” by the Federal Reserve Bank. You may find these pamphlets and additional information by visiting their websites at www.ftc.gov/gettingcredit and http://www.frbsf.org.