Monday, December 22, 2014

How to build a good credit score

How to build a Good Credit Score

I wish we had quick remedy to fix credit score or improve credit score. There is no secret sauce to build a good credit score. It is a step by step process to monitor your credit report and look for the factors which have impacted your credit rating and start improving them methodically. Credit management gurus have often said again and again that best advice to improving credit score is to manage credit responsibly and over the time credit score will improve. However here are few important guidelines on "how to build a good credit score'.

Access and monitor Credit Report

The first step towards improving the credit score is to access your credit report for the details you want to verify and correct. Although you can access your credit report from credit bureaus but it will cost you few dollars. You can access credit report from credit bureaus operating in America. The three credit bureaus documenting consumer information are (Transunion(, Equifax( and Experian( Accessing credit report directly from these credit bureaus will cost you few dollars.

There is one more option to get your credit report absolutely free. The Annual credit report site set up by the big three credit reporting agencies in the United States, to furnish free annual credit reports, as required by federal law. The law provides help to consumers to download free credit report once a year from each of these three credit bureaus.

My personal strategy is to use free credit reports one bureau per quarter, that way I can get more updated reports in next three quarters. However if you are looking for a big loan or you are in middle of improving credit score than downloading all three reports will be a better option. Sometimes there discrepancies between credit bureaus and you don't want to take chance to leave anything behind without credit repair. Get your free credit report from Annual Credit Report.

Monitor and understand your credit report

Now you have credit report in front of you the next step is to understand the structure of report. The information to look for -      - Read through your personal information. How your identifiable information is documented such as name, address, phone numbers.

     - Carefully read your accounts (bank, credit cards), do they match with the credit account you have opened.

     - Check for payment status, do you see any late payments 30, 60 day etc. IF hey don't belong to you it is time to create dispute ticket with credit bureaus and have them removed.

     - What is your debit ratio? This is equation between the credit available to you and the balance you carry on each account. The more lower balance and good available credit on each account helps to raise credit score.

     - Look for any collection accounts, you may have paid those bills but information is still on your consumer file. Raise ticket with credit bureaus and have them remove it from your file.

     - If you have small balances on few credit cards, it may be better strategy to have them paid off and then use couple of credit cards with good low interest rate. Consolidating balance to few cards helps.

     - Look for old derogatory information on file. the old collection accounts, missed payments or late payments can stay only for seven years. If they are old accounts and passed seven year mark then it is time to have them removed from your file.

Setting up payment alerts

You will be surprised many of the consumers simply miss payments or pay late credit card bill because they forget to pay on time. Isn't that a sorry state? Regardless of any reasons you may have for paying late bills or missing payments a strategy to have payment reminder setting on your smart phone, online bill payment or on thing's to do chart plastered on your fridge is a very useful tip. Paying credit cards bills on time specially before due date will help you to improve credit score.

Consolidating Card balance

I already mentioned paying off small balances on cards and then using couple of cards with low interest rate is way to go .

Keeping old good installment or paid debt accounts

Having old installment or paid debt account such as auto, small loans actually gives comfort to creditors and kind of acts as good credit report. It sends positive signal to lenders that you are committed and sincere in paying off the debt. Having good old account them on credit report is absolutely fine.

Making multiple loan request

As long lenders make inquires without your approval and pull your credit report to analyze for credit offer, it doesn't affect your credit report. These type of inquires are considered as soft inquiries.
When you apply to lenders and  any denied credit request actually brings your credit score by few points. hence it is important to access your credit report and understand your placement of creditworthiness based on credit score. This will dictate how much credit you can get.

On time Payments

Paying on time, before due date, and paying more than minimum payment is sure process to improve credit score.

Watch for missed or late payments

Having missed payments or late payments is not the end of everything. Looking at your mistake talking to lenders and bringing your account to current is first step. Sometime lenders will help you to forgo the past payments or put you on low monthly installment program to get you back on track. Making sure going forward you pay bills on time,  before due date and paying more than the required minimum payments is sure way to improve credit score.

Type of Credit

Having mix of credit accounts helps in some cases such as mixing auto, credit, debit and retail accounts. it shows wide variety of account and the length of payment history on these accounts.

Retail accounts to raise available credit

Retails cards are good to shop at individual stores and get big discounts they offer. There is one more reason to have them. Recently, I got retail cards from North storm ($10,000), Macys ($4,000), and old navy ($2000). My intention is to keep available credit to lower my debit to ratio. (Note - On some retail cards if you purchase out side of store items you will be charged with a higher interest rate. For example on my north Strom credit card I get charge with x percent on in-store purchases and on other purchases I get charged with a higher rate. )

Credit score improving links

Finally, few credit improving links, where you can get information in details and proven ways on 'how to build a good credit score.'
  • Credit score A, B C and Z at FICO
  • Improve trick at Experian credit bureau.
  • CreditKarma not only gives you tips to improve credit score but also provides you free credit report. Visit creditKarma.
  • Information at Equifax Credit Score . Equifax
  • Information at Transunion - What matters most. Transunion.
  • Free credit reports at Annual Credit Reports

    • I appreciate your feedback and if you like to add useful credit links, ping me. Thanks in advance.

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