Friday, July 27, 2007

7 Tips on Improving Your Credit Score

by Chris
Recently when I started looking into buying my first piece of real estate property I wasn't aware of the type of credit and financial fitness I had to be in. I hadn't the slightest idea of what was required to get the process started. So like many first time homebuyers I wasn't very educated in the home buying or home loan process.

It wasn't until I placed a call to a colleague of mine who understood the real estate business that I got some help. I was able to figure out what are some of the elements that I needed to prepare in order to start on the road of home ownership. Among his advice was to conduct a credit report check and put emphasis on my personal credit profile in case it returned any inconsistencies.

So as I got deeper into my research I realized the main reason why there was such a big emphasis put on having a higher credit score was to be able to qualify for much lower home loan rates. Up until then, I wasn't aware that my credit score will play a big factor on what types of home loan rates I will qualify for.

During my initial search I also became aware that the real estate industry and creditors alike use the FICO score to measure your credit worthiness. This was the first time I had come across that particular term, and I had no idea what it meant. A quick search for FICO on the internet returned the following definition:

A score system created by the Fair Isaacs Co. that determines what interest rate you will pay on your credit cards, mortgages and auto loans.

So now I had a benchmark that could be used as my starting target. With that preliminary information at hand, I decided it was time to get started onto the road to credit fitness. I will share some of my own experiences that might be of help as you get started in your own road to credit fitness:

1. Check your credit report.

You should review your credit report at least twice a year. It's a credit healthy thing to do and now it's free. You can start by getting a free copy of your credit report from: or They can provide you with detailed report information from three major credit bureaus: TransUnion, Equifax and Experian. It can give you a comprehensive view of your credit and the areas that needs work.

2. Pay attention to the "reason" codes on your credit score analysis report.

When lenders pull your credit report, it normally includes reason codes to explain why your credit profile did not score high. These codes can give you a good idea of what areas can be improved and help boost your score. Here are some common factors that can lower your FICO score:

- Delinquent accounts

- Amount owed on accounts is too high

- Too many inquiries in the last 12 months

- Length of credit history too short

- Too many accounts

- Serious derogatory public record or collection

- Too few accounts with recent payment information

- Amount past due on accounts

3. Correct and dispute errors on your credit report.

You have the right, under the Fair Credit Reporting Act, to dispute any erroneous information or inaccuracies in your credit profile. The first step is locating any discrepancies in your report. Even the smallest error could seriously dent your credit chances. If you find a mistake, immediately bring it to the credit agency's attention.

I've place links at the bottom of the article that will take you to each credit agency's web page, where you can find details on how to dispute any inaccuracies. You can also visit an excellent site called which helps clients with free tools such as credit repair and home loan guides, debt-consolidation workbooks, and several podcasts on how to improve credit ratings. Because your credit history plays such a big role in many areas of our lives, making sure that the credit report is accurate helps you manage your credit to accomplish your financial goals.

4. Add information showing stability

You can also work to add positive information to your credit file. You may have been denied credit because of an insufficient credit file, even though you do have credit. That's because some creditors (local banks, credit unions, and travel, entertainment and gasoline card companies) may not report your credit history to the bureaus.

Try asking the credit grantors to report your account information and monthly payment history to the credit-reporting agencies on a monthly basis. You can not force them and they are not required to report this information to all credit bureaus, but it is worth try to ask.

5. Avoid unnecessary inquiries

Each time a prospective creditor looks at your credit report, an inquiry mark gets added to your file, and most inquiries stay on your credit report for up to two years. Inquiries you make yourself, inquiries made during screening for a pre-approved offer of credit, or an inquiry that is part of a background check for employment purposes are not reported to potential credit grantors.

It is best to avoid over-applying for credit and running up excessive inquiries, for the simple reason that lenders of creditors may think you're trying to get credit due to financial difficulty, or taking on more debt than you can repay.

Lenders do of course realize that some inquiries are a result of shopping around for the best rates on a loan, and so they will often overlook a block of inquiries within a very recent period. It may help if you explain the inquiries in the application process

6. Build an excellent payment history

Paying your bills on time is always a good practice and the best way to improve your score, and is also a good way to rebuild damaged credit. Avoid late payments; they can have a negative impact on your rating. One good habit is to put as many of your bills on automatic as possible. Most service providers such as mortgage lenders, utilities and phone companies are happy to take their payments directly from your checking account each month. Contact your lenders and creditors immediately if you run into problems in making you payments on time to work out a payment arrangements.

7. Monitor your credit regularly

First, every consumer should monitor his or her credit report to check for errors and false, misleading, or incomplete information. Various studies have found that as many as 70 to 80 percent of credit reports may have errors.

Second, more than ever identity thieves steal your personal information typically to steal your money, they often open accounts in your name or co-opt your accounts (run up charges and don't pay) or they may do other things in your name that show up negatively on your credit record. Monitoring your credit report regularly won't stop identity thieves, but it is one way to spot potential ID theft as quickly as possible so that you can take steps to stop it.

Because your credit history plays such a big role in many areas of our lives, making sure that the credit report is accurate helps you manage your credit to accomplish all your financial goals.


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