Credit Score Blueprint: Everything You Need to Know
Additional Tips, Tricks and Secrets
In addition to obvious things like paying your bills on time and not racking up huge balances, the following tips can help you build and maintain a healthy credit score.
Apply for credit
Not having enough recent credit history may negatively impact your credit score. If you lack sufficient credit history, you’ll need to apply for credit to improve your score. Before opening a new account, however, it’s important to ask yourself if you’ll be able to use this card on at least a semi-regular basis, and to make sure a lack of credit is the reason your credit score is low – applying for new lines of credit when you already have sufficient credit history can, as previously mentioned, harm your credit.
Don’t apply for more credit cards than you actually need. Also make sure you’re aware of any annual fees associated with a new credit card and that the lender will report your timely payments and credit limit to the three major credit bureaus (not all creditors supply information to the credit bureaus).
Prune your credit
After your first couple years of building credit, it may be a good idea to cancel any cards with low credit limits (less than $1,000). Low credit limits are a sign that lenders can’t trust you to manage too much credit. Additionally, a higher average credit limit for all your accounts results in a higher credit score. Also keep in mind that while it is good to have more than one credit card, you don’t need more than a few. Having more accounts won’t necessarily equate to a better score. While lenders like to see a variety of credit sources, ten credit cards isn’t better than three (although three is better than one).
Get your credit reports and FICO score every year
You are entitled to one free annual credit report from each of the CCRs, although you aren’t entitled to receive your actual credit score for free. However, if you pay a small fee when you get your free credit report, you can also see your FICO score. Take advantage of the opportunity to get your FICO score from at least one of the CCRs, and make sure you also examine each of your three annual credit reports carefully. Be sure to notify the CCRs if there are any errors on your reports.
Dispute inaccuracies on your credit report
If there are blemishes on your credit report that shouldn’t be there, take action to have them removed. Start by sending letters to the lenders themselves and follow-up with letters to all of the credit bureaus that are reporting the erroneous information. Be sure to keep copies of everything you send, and send your letters via certified mail with return receipt requested. This will come in handy if you ever need to prove that the document was received. For sample letters and templates, refer to the resources at the end of this eBook.
Open savings and checking accounts (one each)
Although these don’t directly impact your score, banks like to see that you have these accounts when applying for credit.
Ask for a “goodwill correction”
Lenders will sometimes remove a negative mark from your account if you simply request its removal. Creditors won’t always consent to do this, but it doesn’t hurt to ask. So, make sure you give it a shot, particularly if you have a long-standing account with the creditor and you only have one negative on an otherwise unblemished payment record. FICO does not track changes to your credit history, so if a creditor removes a bad mark from your account today, FICO won’t know it ever existed next time it pulls your file.
Beware of consumer credit scams
There are a number of services that claim they’ll repair your credit or provide other credit related services for “a small fee” – which often adds up to hundreds of dollars. Just about all of these services are misleading and/or overpriced, and some of them are downright fraudulent.
Credit repair services commonly claim that they can remove liens, judgments, or other negatives from your credit record, but such claims are false. Keep in mind that anything a credit repair service can legally do for you, you can also do yourself at little or no cost.
Other common credit-related services that pose risk to uninformed consumers include advance-fee loans, home equity lines of credit, and file segregation – an illegal scheme employed by credit repair companies that helps consumers fraudulently obtain new taxpayer identification numbers from the IRS to hide from creditors. Beware that if you participate in file segregation, you are committing a felony.
Some credit-related services, such as credit monitoring services, may be legitimate, but such services are generally unnecessary.
Besides encouraging you to participate in exploitative and/or illegal actions, consumer credit scams may also collect your information under false pretenses to commit identity theft. If you do decide to pay for any kind of credit service, it is of utmost importance that you do your research to make sure the company is legitimate.
Keep oldest accounts open
Even if you don’t use them anymore, it’s a good idea to keep your oldest credit card accounts open. This will help your credit score by increasing the average age of your accounts, as well as increasing your amount of available credit.
Look into debt consolidation
Consider consolidating your debts if you have difficulty paying your bills on time. Debt consolidation can help lower the total amount of your monthly payments and simplify your debts by consolidating them into one monthly payment. There are various approaches to debt consolidation so make sure you do your due diligence and research the matter thoroughly before taking this step. As with other credit-related services, there are fraudulent debt consolidation companies out there, so be careful.
Keep balances in check
You know that carrying high balances is a no-no. But exactly how low should your balances be? Well, credit experts recommend that your balances not exceed 10-30% of your total credit limit. If you have several cards with balances, pay down the card that’s closest to reaching the credit limit first. Keep in mind however, what’s best for your credit score isn’t always what’s best for you. If you’re carrying a balance on a credit card with a much higher APR than the rest of your cards, it may be in your best interest to pay down the card with the highest APR first.
Choose which payment to miss
If you absolutely must miss a payment, choose carefully. Missing an auto loan or mortgage payment will hurt your credit more than skipping a credit card payment will.
Protect your identity
We can’t stress enough the importance of protecting your identity, as identity theft can have devastating effects on your credit score. The Federal Trade Commission (FTC) recommends the following tips in order to minimize your risk of identity theft:
- Protect your Social Security number
- Treat your trash and mail carefully
- Be on guard when using the Internet
- Select intricate passwords
- Verify sources before sharing information
- Safeguard your purse and wallet
- Store information in secure locations